Renting vs. Buying

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The age-old debate: to buy or to rent? Most of us have heard that it is advantageous to have your rent money going towards a mortgage on a home you own, rather than to a landlord. However, both the economy and the real estate landscape have changed drastically in the last decade, and buying a home isn’t as sure of an investment as it use to be. How can you know if buying is the best option for you, or if you should stick to renting?

Why we’re asking:

Putting a roof over our heads is a basic necessity, but there are many different ways to do it. Real estate can be a great investment, or it can go terribly wrong. Figuring out which is best for you can get complicated quickly. We look forward to reading opinions weighing in on when it is better to rent or buy, based on current trends and the state of our real estate markets today.

Share your thoughts below:

How do you know if it is better for you to buy or rent a home?

Under what circumstances is buying a better option than renting?

What are the advantages and disadvantages to owning?

What are the advantages and disadvantages to renting?

We look forward to learning more about renting versus buying.

Please post your answers in the comment field below!

15 COMMENTS

  1. How do you know if it is better for you to buy or rent a home?

    I think it often comes down to an emotional decision. Reality is in most
    situations, buying a home is a lot of expense, both time-wise and
    money-wise. If you can afford the payments, the upkeep, have the time and
    the desire, then indulging in the personal satisfaction of owning can be
    very rewarding.
    A home is NOT a good investment unless it’s making money for you (i.e. a
    rental property), financially, but it can be an amazing emotional
    investment.

    Under what circumstances is buying a better option than renting?

    Again, when you’re capable time and money wise to care for the place, and
    you know you’re going to be in a more permanent situation, and want the
    emotional benefits of doing so.

    What are the advantages and disadvantages to owning?

    Advantages: Pride of the ‘American Dream’. Ability to do whatever you want
    (within reason of course) to your place of residence. A bigger voice in
    the community as a homeowner

    Disadvantages: Time and cost of upkeep. Difficulty in moving whenever you
    want. Headaches of problems with a home.

    What are the advantages and disadvantages to renting?

    Advantages: Flexibility to move whenever you want (most places seldom have
    more than a year lease), you can up-size, downsize at you hearts content.
    House issues are the landlords problem, not yours. Only one payment to
    make (aside from utilities).

    Disadvantages: Not always able to personalize as much as you want. The
    emotional sense of ‘owning’.

  2. *When thinking about home buying, you need to think 10 years in the future – what do you want your life to look like? A trend with millennials and retirees, alike, is putting a value on a transient lifestyle. Within their own cities, people want to try out living in different areas and don’t want to feel locked into one place. Also, every market has different rental and ownership rates. Do the research to see which option will give you the most “bang for your buck”.

    * If you are already a homeowner, purchasing additional properties as an investment can be a smart financial move for additional income. Even if you don’t have the desire to take on landlord responsibilities, companies like Real Property Management can coordinate all aspects from leasing to maintenance and even legal issues.

    * Renting takes the pressures and costs that come with consistent upkeep and repairs.

    * Home ownership gives you more independence and freedom to design and transform your space. Also, the money spent on your monthly mortgage is being used as an investment in your future.

  3. So much focus is always put on the financial side of the equation and not
    enough emphasis is put on some of the intangibles. Things like, family,
    career, children and community. These are lifestyle choices that must be
    part of the equation. These are not the only decision factors but an
    integral part.

  4. As a Senior Loan Officer with PFS Funding, a mortgage banker in
    Dublin, California, here are my thoughts:

    How do you know if it is better for you to buy or rent a home?

    There are two main criteria: first, whether buying will make more economic
    sense than renting. First, you should determine what the difference in
    monthly cost is, taking into account those regular costs (like maintenance,
    replacement of appliances, repairs, etc.) that a landlord would normally pay
    for. You should add to this list those items that get replaced infrequently,
    like a roof, figure out when the replacement will be needed, then determine
    how much you would have to set aside each month to cover the cost. If a roof
    will be ready for replacement in 15 years, for example, and the estimated
    cost would be $10,000, you would allocate $56.00 per month for “replacement
    reserve.” ($10,000 divided by 180 months, the remaining life).

    You would then determine what your reduction in income tax would be as a
    result of being able to deduct mortgage interest, property tax and mortgage
    insurance (if applicable). You can get this information from your tax
    preparer at little or no cost, or prepare comparison tax returns yourself,
    using tax prep software. Subtract whatever savings you may have from your
    total monthly cost.

    If your monthly estimated cost is greater than what you’d pay to rent the
    same kind of house, you would subtract the principal part of your mortgage
    payment from the total cost. This part of your payment, the part that
    reduces your mortgage balance each month, is a kind of “forced savings.” Now
    you know your net monthly cost of ownership. If that net cost is lower than
    what you’d pay to rent the same kind of home, and if you are prepared to pay
    into your “forced savings” account, you should go to the next step.

    Step 2: Do you plan to stay in the same place long enough to make ownership
    economically worthwhile? As real estate values recover nationwide, we can
    look forward to modest appreciation over time. Because the cost of buying
    and selling homes is so high (commissions are typically 5%-7% in most
    areas), you would have to own the home for two or three years to recover
    those costs. If the answer to this question is yes, then you should buy as
    soon as you can-both prices and mortgage rates are on the rise.

    If the monthly cost is lower than what you’d pay to rent the same kind of
    house AND if you plan to be in the same place for at least two or three
    years, you should make your move now. The financial benefits are too great
    to ignore.

    Under what circumstances is buying a better option than renting?

    See above.

    What are the advantages and disadvantages to owning?

    Advantages:

    1. Stability. No landlord can decide he wants to sell, and give you
    notice. Your rent will not be increased to increase your landlord’s return
    on investment.

    2. Economic. Not only is the net monthly cost of ownership is lower
    today than renting-sometimes dramatically lower-but a homeowner builds
    equity as part of the monthly payment goes to paying down the mortgage, and
    as the property increases in value over time. This is the way most people
    build the largest portion of their net worth.

    3. Pride of ownership. As a homeowner, you can improve the property as
    you see fit, with high-quality carpets, appointments and appliances. A
    landlord typically will use the lowest grade materials that will do the job,
    because he is looking for the highest rate of return on his investment. You
    can customize your home to suit your preferences and needs.

    What are the advantages and disadvantages to renting?

    As a renter, you will probably have less money tied up in the property; your
    initial cash outlay is likely to be the first month’s rent plus a security
    deposit. You will also be relieved of the responsibility of doing any
    repairs or maintenance. Many landlords even pay for a gardener, because they
    want to preserve their property’s value. If you are a homeowner, you will
    either do that work yourself or pay out of your own pocket for someone to do
    it. If you plan to relocated within a couple of years, renting would be a
    better option for you. As a homeowner, you would either have to put the
    property on the market, find a buyer and negotiate the sale, or rent it for
    some period of time, taking on the responsibilities of a landlord. These two
    realities could make home ownership a bad choice for you at this this time.

  5. How do you know if it is better for you to buy or rent a home?

    You should be sure you’re going to live in an area for the next few years
    if you’re going to buy a home. Alternatively, if you might move away but
    would be willing to keep the home and rent it out, it makes sense to buy.

    Under what circumstances is buying a better option than renting?

    Buying for the long-term investment is almost always a better option than
    renting. Prices can go up and down, but in the long-term, real estate
    appreciates and the tax benefits of owning a home are great.

    What are the advantages and disadvantages to owning?

    Owning allows you to know the home you’re in won’t be sold out from under
    you or the rents won’t be increased. You can live in and change your home
    as you please. It does come with more responsibility and a long-term
    commitment that renting doesn’t necessarily have.

    What are the advantages and disadvantages to renting?

    Renting can be very flexible and allow for a less-constricted lifestyle in
    many ways. It allows for less long-term planning. It also has its
    drawbacks including landlord demands, changing rent prices, and the
    uncertainty of whether or not the property could be sold to someone else.

  6. Hi Briana, there’s no simple or one size fits all answer to the buy v rent
    question. The wants, needs and dreams of every family are different and so
    will the answer.

    First, a family should decide if home ownership matches their lifestyle. If
    their plans are to move in a short period of time (less than 5 years) than
    renting is probably a better option. Equity growth is no longer a guarantee
    and they could end up being stuck.

    I recommend to my clients, to “test drive” the lifestyle. Home ownership
    costs more than renting and a test drive will let them match their budget
    to those increased costs and see how it affects their lifestyle. For
    example, if they’re currently paying $1000 in rent, but feel they would be
    comfortable making a $1500 house payment, putting into savings the
    additional $500 now would allow them to acclimate to the higher payment.

    While the investment value of real estate is subject to debate, the tax
    savings (at least for now) should be a major consideration. Regardless if
    their home goes up in value they will pay less in taxes by owning a home.

  7. Simple rule of thumb. If you are going to live in an area for 2+ years — and you can afford it (i.e. qualify for a mortgage) — it’s usually better to own vs. rent — as long as you buy smart (i.e. good location, well maintained home).

    It’s better to own, when you take into consideration:

    1.) Home appreciation — historically speaking an excellent investment over the long run. (3-4% over the last 100 years according to gov’t records) — basically the same as inflation.

    2.) Tax Advantage of owning over renting (mortgage and real estate tax write off)

    3.) Opportunity cost of paying rent — (When you rent, you are not making an investment in anything other than the Landlords asset.)

    4.) Leverage. What other investment can you control a $400,000 asset with a $14,000 investment?? (assuming you qualify for the mortgage (on this example – you would need @ $97K income on a 3.5% down FHA Loan). IF the home goes up 4%/year (4% of $400,000 is $16,000 the first year) you would have more than doubled your investment in year one.

    5.) Control of your own destiny. IF you lock in a 30 year fixed rate mortgage (especially in todays rate environment) your payments should be fixed for the foreseeable future. VS. Renting — it could change (read increase) in the future.

    The downside of owning??

    a.) Home upkeep. Many newbies are afraid of the unknowns — but there is not better time to learn — than now.

    b.) Transition costs. — Thus the 2 year rule of thumb. If your transition costs are 10% — your appreciation/tax write offs should pay for this– generally speaking — if you live in the home for 2 years.

  8. How do you know if it is better for you to buy or rent a home?

    It depends on your financial situation. It best to have all other outstanding debts paid off before buying a house. Including credit cards, student load etc. You should have save the biggest down payment that you can, only apply for a 15 year fix rate mortgage, and make sure you monthly payments for the house are not more then 1/4 of your take home pay. These leave room in your budget for other expenses.

    Under what circumstances is buying a better option than renting?
    Buying is the best option if you are debt free and only apply for a 15 year fix rate mortgage, and make sure you monthly payments for the house are not more then 1/4 of your take home pay.

    What are the advantages and disadvantages to owning?
    Advantages:
    Good investment.
    Ability to make it your own by making updates, paint, design changes,landscaping, etc.

    Disadvantages:
    Bad investment.
    Reoccurring cost associated with maintenance, repairs.

    What are the advantages and disadvantages to renting?
    Advantages:
    Renting can be a good option for someone looking to save money to prepare to buy a home someday.
    Renting can save you money to help get your other finances in order, paying down debt before you take on the responsibility of home ownership.
    Renting typically comes with very lower maintenance or work for the tenant.

    Disadvantages:
    You typically need 1 month’s rent & 1 month’s security.
    Living arrangement could be month to month without a lease.
    May need to move often.
    Limited ability to make the living space you own.

  9. Renting can be a frustrating process: moving when the landlord hikes the rent, not being able to paint or decorate exactly how you want – all these things add up to make a place feel a little less like “home”. While many of my clients have expressed hesitation at buying with the recent fluctuations in the Real Estate market, there are a few important things to keep in mind. First, mortgage payments go away eventually. Even if you don’t see huge gains in equity your balance still goes down, unlike rent which only increases with inflation. Second, mortgage interest (the majority of your payment in the early years) is deductible! Who doesn’t want to pay less taxes? Finally, as mentioned above, you can paint your walls any crazy color you want and stay as long as you want!

    So how do you know when it’s time to buy? Well, a great rule of thumb that a friend introduced me to a few years ago is the “Rule of 15”. Multiply your monthly rent times 12, then multiply that number by 15. If you find homes in this price range attractive, buying is a strong option for you!

  10. There are several online calculators available to determine whether renting or buying makes the most sense from a purely financial standpoint, and there are also several rather complicated ratios and percentages to go by. But to me, it involves a lot more than that.

    If you’re strictly looking to save money, then use one of those calculators. But if you enjoy the flexibility of being able to move around whenever you want, then renting makes the most sense. If you have a job that may require a good bit of relocation, renting is also a better idea, especially if your employer doesn’t cover relocation costs.

    If you prefer stability and you don’t anticipate moving often, then buying a home may be a better choice. Just realize, if you are a first-time home buyer, that you are responsible for completing your own home repairs (or paying to get them done) and you are responsible for keeping up the exterior and landscaping.

    If you think you’re going to stay in the same area for five years or more, buying a home usually makes better sense. If you itemize deductions on your taxes, you can save a bundle by purchasing a home. And from a purely financial standpoint, as long as you shop around for a good home at a decent price and qualify for a low-interest mortgage, buying is usually the best option.

    Owning a home means your monthly mortgage payment is going toward something you own, which s not the case when you rent. This means you may make money off of your investment when you sell. If you get a fixed-rate mortgage, your housing payment will not go up, something you can’t count on when renting. You also generally enjoy more privacy.

    One disadvantage to owning is that finding, buying, and financing a home purchase generally takes more time than simply finding an apartment to rent. You usually need a significant down payment, and you are solely responsible for home repair and maintenance expenses. And if you fail to keep up with your payments, the lender can take your house away from you. Also, there is no guarantee that your home will improve in value. The recent collapse of the housing market is proof of that.

    A big advantage of renting is flexibility. You have the ability to move after your lease is up, which is usually every 6 to 12 months. You also don’t have to worry about repairs or maintenance since they are typically covered by the landlord. One disadvantage of renting is that you don’t get any tax breaks, and your monthly payment can also increase, sometimes without a lot of notice.

  11. It takes a good understanding of the local real estate market both in the
    sales and rental market to know whether buying or renting is best. When we
    give our clients advice on this question, the first thing we want to know
    is how long the person intends to live there. Are they considering a
    shorter or longer period of owning that home? The second thing we consider
    is what is going on in the real estate market, is it appreciating or
    depreciating? The third thing is what would the same property rent for?
    More or less than what your mortgage payment would be? We also consider
    whether you like the freedom that owning gives versus renting. Do you want
    to be able to decorate, paint or make changes? With the Florida real estate
    market appreciating, many buyers are deciding to buy if they are planning
    on owning 2 years or more.

  12. How do you know if it is better for you to buy or rent a home?

    Yahoo has a calculator that is helpful for comparisons between the costs of
    renting long term and buying. The buying vs. renting debate brings up two
    big issues of job stability and lifestyle choice. The best people to
    discuss this decision with are a financial adviser and/or an agent who
    knows that market in which you live. Either way, you will have to look at
    your financial situation long-term to come up with a budget so you can save
    up for the down payment on a house.

    Under what circumstances is buying a better option than renting?

    Buying is a better option when you know what area you want to be in
    long-term. For example, some new schools are opening, businesses are being
    added, the neighborhood is blossoming with development at every turn which
    will increase home value.

    What are the advantages and disadvantages to owning?

    Owning a home is a lot of work and requires regular upkeep. Think of a
    lawn, winter weather, home improvement projects, all of which are
    undertaken by you since there’s no longer a landlord or property manager.
    Owning also involves paying real estate taxes which are subject to change.

    What are the advantages and disadvantages to renting?

    Rental advantages: Mobility, you can move around the city to different
    neighborhoods. You have less responsibility for repairs and maintenance.
    For younger renters, you can split the rent with roommates and save money
    yourself.

    Disadvantages: You can’t make a lot of changes to your unit. For example,
    some buildings prohibit painting walls different colors and certain kinds
    of pets (dogs over a certain size or breed). Once you pay your rent, that
    money is gone, it’s not like it’s going towards a mortgage and eventual
    ownership.

  13. Deciding whether to buy or lease a home is a big decision and one that is not to be taken lightly since you will be spending time and money in this potential investment. When asking yourself “should I buy or lease a home”, there are many factors to consider. It can be helpful to do research, discuss the matter with a knowledgeable realtor, and make a list of the pros and cons of home purchasing versus renting a home. One must also take into consideration the housing market in your particular region, as it varies widely from state to state. After reviewing your list, weigh what is most important to you and what makes sense for your particular situation; further discuss the matter with your family (if applicable) and your realtor so that you can arrive at a well thought out decision. There are several points one must take into consideration when deciding whether to buy or rent. First and foremost one must consider their lifestyle. Are you someone that is looking to settle down and lay roots somewhere, or do you have a wanderlust that might drive you to move in a year’s time, or perhaps your job requires a great deal of travel or possible relocation at any time? If the latter, then renting may be the wiser option as houses require a great deal of time and care to maintain and there is a significantly lower amount of freedom in moving once you have already purchased a home. Another equally important aspect to consider in this debate is the state of the housing market in your area. A home is not always a wise investment, particularly in these tough economic times. If you are in fear of pay cuts at your job or are unsure of the position you are in, the wiser decision might be to hold off on purchasing a house and focus on saving the money that would go into that purchase for other investments. If you have poor credit, this could also be a time to rent and build a strong history of timely rent payments. On a lesser scale, other facts to consider are the level of creativity and ability you will have to customize your living space. Many landlords do not allow their tenants to paint, or hang too many pictures because they could damage the walls. In a house that you own you are free to do whatever you want and make it the home you’ve always dreamed about. If you are unsure, that probably means you should rent first, then save money to purchase a home when you are certain that you are ready. Buying a home is a big commitment, so don’t hurry the decision.

  14. . How do you know if it is better for you to buy or rent a home?
    “The first thing you should do is consult with a mortgage broker, regardless of whether you think you want to rent or buy. Many people think you can only buy if you have a 20% downpayment saved. Many think it’s an insurmountable barrier to entry and that the purchase cost is much too high. You need to understand your financing options. Maybe you only need 5% down. Or, if you are retired military, you can put 0% down.

    Or, maybe you can’t qualify to buy a home because of your credit score. The interest rate you get depends on your credit score. You also should get pre-approved so you know the downpayment amount you will need and what your interest rate will be. For a $300,000 home, you may only need to put down $15,000. Many people are not putting down a 20% downpayment. In 2012, more people had to put down a larger downpayment, but so far in 2013, banks are being more flexible and downpayments are smaller. You really need to get all the facts before you can start answering these questions.”

    2. Under what circumstances is buying a better option than renting?
    “If you think you will be staying in that home for long time. You should buy if you find a good home in a certain neighborhood you want to live in/work in and don’t want to be beholden to landlord. Buying is ideal if you want to have fixed costs in a desired neighborhood. A good school district is an important factor as well.

    Buying also is smart if you think an area is going to appreciate in value. If there is a lot of construction and gentrification going on, that’s a sign an area will be appreciating. You may want to buy because appreciation is more favorable.

    But, if you are new to a city, it’s better to rent first. Especially in a bigger city like Chicago. It’s ideal to rent for a year to get to know the lay of the land. Familiarity with neighborhoods and the city is key. Don’t worry about the money lost to renting in this case. You don’t want to rush into buying in a new city. Don’t look at the numbers as much. Wait a year, and do your homework.”

    3. What are the advantages and disadvantages to owning?
    “Advantage would be tax write-offs. You can deduct real estate taxes and mortage interest on your income taxes.

    Also, you are not beholden to a landlord, who can raise rent, may want to sell and could kick you out. You are dependent on their financial situation. When you buy, you are in control.

    There are also the financial benefits of paying a mortage, such as building equity. It’s like forced savings.

    When you own, you also have the ability to take advantage of appreciation. With renting, you get thwarted by appreciation because rent goes up. If you get a good deal on rent in good neighborhood that’s gentrifying, you won’t get that low rent for long, as it will go up.

    Really, the most important factor, I think, is your comfort level with a new home. You must be really excited about where you live. If you are not, you should rent and not buy there.

    4. What are the advantages and disadvantages to renting?
    “The big advantage to renting is you can test out a neighborhood. If you don’t like it, you can move and you are not financially stuck with having to sell a home.

    Also, there are no carrying costs with maintenance. You not responsible for big ticket items.”

  15. How do you know if it is better for you to buy or rent a home? If you are planning to stay in one place for a while, buying is the best option financially. Most investors will tell you that buying real estate is not a question of making money, it’s a question of when. And the longer you can hold onto a property and watch the value increase, the better off you will be. What are the advantages and disadvantages to owning? Write off the interest in your taxes, build equity, and make it your own by painting or remodeling. It’s like living in your own bank account. The disadvantage is that you are responsible for repairs and maintenance, so you do want to have a saving account that you can turn to when these issues come up. What are the advantages and disadvantages to renting? When I was renting my dad used to say, “How do you like burning all that money?” And he was right. In the end, I had nothing to show for it. No property and no savings.

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