Should I Rent, or Should I Buy?
To buy or not to buy, that is the question. And
in today’s market, it isn’t necessarily an easy question to answer. When it
comes to investing in real estate, many professionals recommend getting into
the market as soon as possible and finding ways to increase the value of the
property. However, that’s not the right answer for everyone. Before deciding
whether you’re going to rent or buy a home, consider the pros and cons of each.
Renting: Pros
- One of the best things about renting is that you are not committed to a mortgage, thus, you are able to move as often as you want. You can try out new locations until you find the right one.
- Most people are able to afford to rent in an area that they can’t afford to buy in. This means that if you have kids, you can send them to better schools, with better opportunities and better transportation, even if you can’t purchase a home in that area.
- You’re not responsible for maintenance or repairs. If something breaks, just call the landlord. No home emergency repair fund needed.
- You can take any other money you have and invest it elsewhere. For many homeowners, there isn’t a lot of extra money left over.
Renting: Cons
- When you rent, you are paying off someone else’s mortgage. In other words, you’re not building any equity. Once the rent is paid, that money is gone forever.
- You have no control over rent fluctuations. With mortgages, you can sometimes refinance to make things more manageable, but with rent you don’t have that option.
- You’ll have limited design and decorating opportunities. When you buy, you can do whatever you want, but with a rental you’ll be limited by what the landlord allows.
- When you rent you also run the risk of ending up with a bad landlord. If you have to rely on someone who’s irresponsible, it can be a nightmare.
Buying: Pros
- Buying a house can be a great investment. When you purchase a home, you immediately begin building equity.
- You can renovate to make it exactly what you want. While there can be limitations (particularly in condominiums), if you don’t like something, you can usually change it.
- You can make value-added improvements. This means more money when you sell and/or the opportunity to refinance and pull money out of the home for other reasons.
- There are tax credits that can help offset some of the costs. They vary based on several different factors, but they do exist.
Buying: Cons
- It requires a big down payment; and for a lot of people who are just starting out, coming up with the money can be difficult.
- It’s a long-term financial commitment. While you will build equity over time, it takes many years to see the benefit.
- It’s a long-term location commitment. While you can change pretty much everything about a house, you can’t change where it’s situated.
- You are responsible for all maintenance and repairs – and they’re not free! No landlord is going to show up and shovel the snow or fix the washing machine.
So… Rent or Buy?
There’s one thing that people have to keep in mind when they’re trying to decide if they should buy a home or continue to rent: try a practice mortgage. For one year, while you’re renting, put aside the amount you would have to pay as a homeowner (mortgage, property tax, potential repairs, etc.). It will give you a realistic idea of how your lifestyle and budget will be affected. If you find it too tough, don’t buy. If you can manage, go for it. And the bonus of this exercise is that at the end you’ll have some extra cash for your down payment.
As much as there is real value in real estate investing, whether you should rent really comes down to individual lifestyles and goals. If you’re looking for long-term financial gains or stability, you will typically do better with buying. But if you’re in a temporary situation or if you have to take on unrealistic interest rates in order to buy, renting can be the smarter option.