If you’re in the market for a new home, you’re probably trying to make a decision about whether to rent or buy, choosing between short term convenience and long term security.
Making this decision is not simple, and it forces us to consider many factors about where we want to live, and for how long. Let’s take a look at the pros and cons of renting and buying before we discuss some further factors to consider.
The biggest positive of renting your home is convenience. You aren’t responsible for maintenance, repairs, or even (in the case of apartments and condominiums) yard work. The biggest headaches of owning a home aren’t your problem, at least financially.
Moreover, renting gives you flexibility with time. When your lease is finished, you’re free to move wherever you like, without the hassle of going through the sale process. If you are planning to stay anywhere for a short amount of time, renting is almost certainly your best option.
Renting does offer you more flexibility, but it also gives you less control. While repairs and maintenance might not be your responsibility, neither are remodeling or redecorating. The home you rent, for better or worse, will need to be the home you give back to the owners with few exceptions.
Renting also does not provide you with any long term advantages of investment. You’re never going to sell your rental property for more money than you paid for it, because it isn’t your property to sell!
Renting a home will initially require a security deposit, plus a first (and often last) month’s rent. From month to month, you’ll need your rent and renter’s insurance. And yeah, you need renter’s insurance, Rachel.
As is so often the case with pros and cons list, the pros of buying mirror the cons of renting. Buying gives you total freedom with your home: if you want to knock down that wall and have an open concept kitchen, you unleash your inner Joanna Gaines and get to work!
The renovations you do on your home have the double benefit of making you happier and increasing the value (though be careful where you put your money if that is your primary goal). That is the long term advantage of owning, of course: you’re living in a home while simultaneously building a nest egg.
Of course, with greater selling power comes greater responsibility. Home owners are saddled with all the responsibility of maintenance and repair, which means setting aside money to do it! You don’t want to be unprepared when the furnace gives out in the middle of winter.
Additionally, if you decide to move, you’re responsible to prepare the home for sale and actually get it sold. That can be an irksome process for anyone, but it’s worth it if you’re looking to upgrade.
To buy a home, you will need a down payment, which can sometimes be as low as 3.5 percent, but beware: the lower your down payment, the higher your monthly costs will be (and often, thanks to interest, the more you’ll pay in the long run).
From month to month you will need your mortgage payment, insurance AND homeowner’s insurance. You’ll also need to be prepared for property taxes, as well as maintenance costs (a good rule of thumb is that maintenance will cost you 1.5 percent of your home’s total value per year, so you may want to put a twelfth of that value away each month).
One of the biggest considerations in all of this calculation is location. Where you are considering buying or renting can be critical to your decision. Do you plan to stay there longterm? Do you want to build a family there? Is the economy booming or shrinking? Are the schools good?
The more positive answers to those questions, the more likely you’ll want to buy there. If the answers are negative, you may want to consider renting, especially if you’re only there temporarily.
The Bottom Line
No one can tell you whether renting or buying is a better decision for you. There are tools you can use to help you decide (like this handy calculator) but ultimately the decision is yours to make. The basic guideline suggests that the longer you plan to stay somewhere, the more likely it is that buying is a better option. But consider this list and your long term plans before making a decision about where you want to live.