To rent or to own your home, whichever option you choose, depends entirely on your lifestyle and financial situation. Both require a regular income (so you can afford the payments and associated costs) and may also require a certain degree of effort to maintain.
But there are several differences that make renting and owning property distinctly different. Renting a property doesn’t come with all the responsibilities associated with homeownership and you have more flexibility, as you aren’t necessarily tied down to your property. Owning your home gives you a sizable investment, but it does come at a big cost—both upfront and over the long run.
Owning a home isn’t always better than renting, and renting is not always as simple as it seems. Here, we highlight some of the key differences between renting and buying.
Renting a Home
The biggest myth about renting is that you’re throwing away money every month. This is not true. After all, you need a place to live, and that always costs money in one way or another. While it’s true that you aren’t building equity with monthly rent payments, not all of the costs of homeownership always go toward building equity.
When you rent, you know exactly your housing costs each month. This amount is indicated on your lease so you can plan accordingly. In some cases, your landlord may also include other costs within that amount, such as utilities, storage, and homeowner association (HOA) fees if you live in a condominium.
As a renter, you may face rent increases each time your lease is up for renewal. These rent increases can be even steeper if you live in certain parts of town. This may not be the case if you live in an area with rent ceilings and rent control, which limit how much a landlord can increase the rent, if at all.
Renting means you’re able to move whenever your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your apartment complex into condos. Less dramatically, they could just bump up the rent to more than you can afford.
Owning a Home
Homeownership brings both tangible and intangible benefits. Not only do you have your own home, you can make decisions about the look and design of the space, but you also get a sense of stability and pride of ownership.
Keep in mind, though, that changing your mind about where you are living can be very expensive since real estate is an illiquid asset. You may not be able to sell when you want. And even if you do, you may not get it at the price you want, especially if the housing market is down. Even if it’s up, there are significant transaction costs associated with selling your property.
The overall cost of homeownership tends to be higher than renting even if your mortgage payment is lower than the rent. Here are some expenses you’ll be spending money on as a homeowner:
- Property taxes
- Trash pickup
- Water and sewer service
- Pest control
- Tree trimming
- Homeowners insurance
- Pool cleaning (if you have one)
- Lender-required flood insurance (in some areas)
- Earthquake insurance (in some areas)
And let’s not forget repairs and maintenance, which can be very costly. You may find yourself with an unexpected leak in the roof. Replacing your roof could cost an additional $12,000, which may not be covered under your home insurance policy.
Is It Better to Rent or Own a Home?
There is no definitive answer as to whether renting or owning a home is better. The answer depends on your own personal situation—your finances, lifestyle, and personal goals. You need to weigh out the benefits and the costs of each based on your income, savings, and how you live.
Is Renting Cheaper Than Owning a Home?
Renting can be a very predictable expense. You know what your costs are upfront and can plan accordingly. On the other hand, if you enjoy a lavish lifestyle, you may find renting to be more expensive than owning a home, even if there are repairs and regular maintenance you have to make with purchasing real estate.
Is Homeownership a Good Investment?
Buying a home can be a very good investment. You may be able to build equity. But as with any investment, just how well your investment performs depends on a number of factors. When it comes to real estate, factors like location, the economy, maintenance, and environmental concerns can affect the overall value. And keep in mind, that it’s never static, so things can change.
The decision to rent or own goes beyond on your financial situation, it’s also about your comfort and vision for your future. Ignore people who tell you that owning always makes more sense in the long run or that renting is throwing away money. Housing markets and life circumstances are too varied to make blanket statements like these. In short, the decision should be what’s best for you and your family; however, do seek guidance. Lean on professionals for questions regarding on home loans and financial planning.