When deciding whether to buy or rent, there are a lot of considerations to take into account. When I'm making decisions like this, I like to make a pro and con list. But what are the pros and cons of renting versus buying a home?
Of course, you should always run the numbers of renting versus buying. Zillow has an easy calculator that can quickly tell you the break even point for a home purchase - how long do you have to live in a house to hit the break even point?
But beyond that, there are a number of other pros and cons of renting versus buying. Let's take a look at some of the considerations:
Pros of Renting
Leave Whenever You Want
Similar to looking at the break even point, when you rent, you're only locked in for the length of your lease. If, after two years, you decide that you would really like to live in a different neighborhood, you can move relatively easily. If your job suddenly relocates you, if construction suddenly makes your area less appealing, if you decide you want something bigger or smaller, you aren't stuck having to sell your house.
Someone Else Handles Problems
Your microwave stops working? Call your landlord. Plumbing clogged? Call your landlord. Your neighbors are leaving trash everywhere? Call your landlord.
There is nothing more frustrating than when something breaks in my house. Not only do I have something broken, but now I have to find someone to repair it, stay home for the repair appointment, and then pay for the repair. With a rental, you may not have to do any of that. (Depending on your rental agreement, you may need to be home for the repair appointment.) Of course, the best part is not having to deal with the financial side. You don't have to worry if your emergency fund can cover a new hot water heater because it isn't your responsibility.
Build Your Savings or Pay Down Debt
Because your costs are relatively set when you rent, you can work to put away money towards a down payment on a house or work towards paying off your debt before taking on more debt in the form of a mortgage.
Build Your Credit Rating
By signing a lease and paying your rent on time every month, you will be building or improving your credit rating. This can help you get better rates when you do decide to buy a house or take on a loan for another purchase (such as a car loan).
Not Subject to Drops in Market
Home prices fluctuate. In general, they tend to go up, but many of you will remember the recent housing market crash. In the US, home prices peaked in 2006 and reached new lows in 2012. So if you bought a house in 2006 and wanted to sell 6 years later, your home was suddenly worth significantly less. If you were renting during this period, you weren't affected at all by this market change.
Cons of Renting
Rent Can Increase
While some jurisdictions have limits on how much your rent can increase every year, in general, landlords have the right to increase your rent with every lease, and in all of the apartments I have lived in, my landlords have exercised that right. I additionally experienced increased fees. For example, our apartment offered free parking, but when new leases were offered, the parking went from free to $150 a month. That was a huge increase, in addition to the increase in rent. But my options were to either deal with it or move.
While you are building your credit rating, you aren't getting any equity in your home. Some people will say that renting is just throwing away your money, but that's clearly not true. You're getting a place to live and all the amenities that come with renting. But if you were paying that money towards a mortgage, you would slowly be buying more and more of the home, and as long as the home value doesn't drop, when you sell the house, you will walk away with more money than you initially put down as a down payment.
No Tax Breaks
If you have a mortgage, the interest you pay is tax deductible. None of your rent is tax deductible. Of course, you are also likely paying less for your rent as compared to mortgage and property tax payments, so this isn't as huge of a con as it may seem.
May Not Be Able to Personalize
Different landlords have different rules, so depending on your lease, you may not be able to paint your walls, and some even have rules about what can be hung on the walls. While you may be able to hang pictures, you may not be able to hang heavy shelves, for example. You're also stuck with the flooring that your landlord has installed, so no matter how much you hate that ugly brown carpet, you're stuck with it until your landlord is ready to change it.
For a lot of people, buying a home is the goal, but plenty of people go their whole lives as renters. There are definitely perks to both, and it's all about finding what works best for you. So if you are happy in your rental and aren't ready to buy just let, don't let that get you down. The important thing is having a roof over your head and a safe place where you can relax and enjoy your downtime.