What's the Better Choice: Renting or Buying?

Posted by Kelly Holck on Wednesday, October 31st, 2018 at 4:20pm.

I've seen countless blog posts and articles discussing the "Rent vs. Buy" debate.

Some of those write-ups take the side of home buying, while others claim renting is the more advantageous route to take. However, after reading numerous pieces and chatting with several friends on both sides, I've found that the "better" choice depends entirely on the person making the decision. So are you going to enter the red door below and continue renting or will you open the blue door and purchase your first home?

Keep reading to find out which choice is better for you. 

Photo courtesy of Flickr account Tim Franklin Photography

 

According to a 2016 PEW Research Center Survey, 75 million US household heads are homeowners, while 43.3 million are renters. Of those 43.3 million renters, 65% are only renting because of circumstances like their perceived financial situation. A whopping 72%, or 31.176 million, say they do want to buy a house in the future.

 
Though statistics don't lie, there are several points that come into play when determining whether you should join the 75 million homeowners or if you should continue to rent: 

  1. Are you a rule follower or a risk taker?
  2. What is your current financial situation and what are your goals?
  3. Do you prefer stability or flexibility?

 

Are you a rule follower or a risk taker? 

You spend a lot of time on Pinterest dreaming up your kitchen cabinets or kid's playroom. You've always wanted to paint a room bright yellow, just because. 

If the above is taken out of the book of your life, then you should buy a home! When you rent, you have to live by the rules of your landlord. Often times, you're so anxious to get moved into your new rental, you sign on the line and neglect to read the actual contract. As most of you already know, many rentals won't allow any sort of renovations and some won't even allow you to put nails in the wall to hang pictures! When you buy a home, you don't need to email a landlord to beg for permission to paint the living room grey. However, you should probably run it past your significant other or housemate(s) first.


Photo courtesy of Flickr user Jeremy Levine

Landlords get to determine whether or not your fur baby gets to live in your rental. When I was originally planning my move to Madison, it took me a long time to find a rental that would allow my two cats to come along. If you're like me, there's no way you'll allow someone else to tell you to get rid of your pets. *It is important to note that if you live in a neighborhood with an HOA, there may be some restrictions on breeds or size of your pets. Don't forget to review the rules and regulations of the HOA before submitting an offer to purchase.

Another homeowner benefit you may not realize you have (unless you've rented from a careless landlord) is the freedom to hire the contractors you trust. I've been in multiple rentals where things have gone wrong and the maintenance that's done to fix those issues done with the absolute bare minimum of care. Yes, the landlord will send someone to come fix the sink, but his "discount contractor" might just throw some duct tape around the piping underneath to "repair" the issue. 

In the end, when you buy your home, you're the only one who dictates what happens there and who is helping to make it happen. You can make your space YOURS without worrying about breaching any sort of contract. I don't know about you, but painting the walls and making my space feel like me  is when I feel most at home.

 

What is your current financial situation and what are your goals?

You're currently working in a temp job or you simply don't have a steady, stable paycheck coming in. You have, however, been saving a little bit of money for a few months from each paycheck that you dip into when you need a little extra spending money. You've also been attempting to get your credit score in a healthy spot considering all of those missed credit card payments really brought it down. If something financially bad were to happen, you're not sure what you'd do other than ask your boss for an advance on your paychecks.

From a financial standpoint, if you can relate to most of the statements above, it might be best for you to continue renting until you can get on your feet.

When renting, you'll likely have the upfront costs of first and last months rent, plus a security deposit equal to one month's rent. Your potential landlord will probably check your credit but won't be weighing it against a $250k loan like a lender will be doing when you want to buy.

When you buy a home, you presumably need to have between 3 and 20% of the purchase price upfront for a downpayment. If you do end up putting down less than 20%, you'll probably also need to purchase private mortgage insurance for your lender's protection. Closing costs should be taken into account which add on another 2-5% of the loan amount, on average. On top of that, you want to be sure you have extra money in case there are any maintenance issues that come up unexpectedly. That extra money also comes in handy when it's time to pay your property taxes at the end of the year. 

Though buying a home sounds like a financial burden upfront, it definitely has its benefits in the long run. For one, mortgage payments are often less expensive than rent payments if you're looking to live in a specific area. In fact, according to an article on Rentberry, US homeowners are paying almost 33% less than renters, including taxes and maintenance, when they take out a 30-year mortgage. 

Some other benefits of being a homeowner include deducting mortgage interest and property tax payments from your taxes. You might even be able to deduct capital gains. You're also building equity, the difference between your home's market value and what you still owe on the mortgage, when you buy a home. When you build equity, you're able to take it out in a loan to invest elsewhere. Your home itself can turn into an investment as well when home prices in your area rise.  

If you're still a little unsure or nervous about whether or not you're financially ready to buy a home, check out this neat calculator which may give you a better idea. Take a look at the example below.  

 

Do you prefer stability or flexibility?

You adore the city you live in because that's where family, friends, and your job are all located. Though you moved around a bit after college, you're finally ready to settle down and possibly start a family of your own. You love the current home you're renting, but the landlord plans to sell it as soon as your lease is up. 

If this sounds all too familiar, you might be ready to buy a home! When renting a home, your landlord can make major changes to your new lease as soon as your current one expires. I can tell you, from personal experience, that it's not fun to be settled into a home just to find out your rent is going to almost double in five months. When you take out a fixed mortgage to purchase a home, you're guaranteeing that your payments will be consistent through the life of the loan.

Your landlord can also pull the plug on you once your lease expires. When you own your home, there's no one around to kick you out after a year. As long as you're making your mortgage payments on time, you can stay in your home for as long as you'd like. 

If you're planning to start, or have already started a family, then you're probably craving a little more stability in your life as well. Buying a home gives you the security, mentally and physically, that is necessary when you have other people to take into consideration. You wouldn't want to get your kiddo enrolled in school just to put them into a different one a year later because you couldn't find another place to rent in that school district. You probably wouldn't feel comfortable, either, leaving your teenager at home if there are several other people (i.e. landlord, maintenance workers, etc.) who have access to your residence. As a renter, you may never know how many keys are out in the world that can get someone into your home. 

 
Photo courtesy of Flickr user George Redgrave

 

There are so many factors that go into the "buy vs. rent" decision, and the above are only a few of them. It's important to do your due diligence in researching immensely before making a major commitment like signing a lease or purchasing a home. Feel free to reach out with any questions about being or becoming a homeowner.

And, if you decide you're ready to go through the blue door, give us a call and we can help you find your dream home!

 Until next week, K

 

Sources 

Cilluffo, Anthony, et al. “More U.S. Households Are Renting than at Any Point in 50 Years.” Pew Research Center, 19 July 2017, www.pewresearch.org/fact-tank/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50-years/.

“Renting vs Buying: What to Choose.” Rentberry, 11 Oct. 2018, https://rentberry.com/blog/renting-vs-buying.

“Rent vs Buy - What's Right for You?” Nerdwalletwww.nerdwallet.com/mortgages/rent-vs-buy-calculator.

Thangavelu, Poonkulali. “Renting Vs. Buying A Home: Which Is Right For You? | Bankrate.com®.” Bankrate, 3 July 2018, www.bankrate.com/mortgage/renting-vs-buying-a-home/.

 

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