Deciding whether to rent or own is a question many people face at least once, and it’s not always easy to determine which option is right for you. To make the correct choice, you’ll need to weigh the pros and cons and evaluate your specific financial situation.
We’ve got everything you need to solve the rent versus own debate. From the advantages and disadvantages of each to essential considerations, you’ll be ready to find your next place with confidence.
Advantages and disadvantages of ownership
For many, owning a house is a critical piece of the American dream, and it’s often a smart financial move, as well. There are also significant pitfalls to be aware of. Here’s the breakdown of homeownership.
Pros: This one is almost too obvious to list, but it gets to the core of the rent/own argument. Homeownership means you can do whatever you want inside your space. Is the kitchen outdated? Rip it out and upgrade it. Do walls need some color? Paint them whatever shade you want. This also means that your monthly payments are working for you instead of a landlord, and any significant upgrades you make to your home can add to the resale value in the future.
Cons: Because you’re the owner, you’re financially responsible for any repairs or appliance replacement that may arise. These costs can add up fast and usually happen without warning. Unexpected costs should make you rethink spending your entire savings on a down payment. Ensure you’ve got enough for emergencies, and try to get a full inspection at the property you’re making an offer on.
What about money?
Pros: Real estate has always been a favorite with investors, and it typically offers more security than other financial tools. Buying at the right time in the right location can bring impressive returns, and you can make focused renovations that can add to the value. Smart improvements can add significantly more to the selling price of your home than they cost to complete.
Cons: While the old standard of a 20% down payment isn’t entirely accurate, you’re still going to pay a lot of money upfront to get your foot in the door. And reaching that threshold will save you money each month on PMI payments. You’ll want to make sure your savings are in a good spot before taking the plunge.
Advantages and disadvantages of renting
Renting is typically the first step when moving out on your own, but some people prefer it over owning and consider it a good long-term situation. Here’s what you should know about renting.
Almost worry free
Pros: Unlike owning a home, you aren’t on the hook for repair or upgrade costs when you rent. If your dishwasher quits working or you’ve got a leak, your landlord should pay for the expenses incurred to remedy the situation. Not paying for emergencies is quite helpful if you don’t have much in savings.
Cons: Not all mortgages have fixed interest rates, but payments tend to stay reasonably stable. When you rent, you should expect a rent increase every time you renew your lease. This often leads to longtime residents being priced out over time, so be prepared for gradually rising rents.
Pros: Compared to buying, the upfront costs of renting are an outright bargain. You’ll likely pay a deposit and a month’s rent before getting the keys, unlike the tens of thousands you’ll put down on a house.
Cons: As we mentioned above, your rent will probably go up every year, and rent prices typically far exceed mortgage payments for a similar sized space. Add the fact you’re never taking ownership of your rental, and buying can seem like the more attractive option.
Make sure to consider your specific financial situation before committing. Renting is a great step to help you save up and reach your goals and could be a long-term option depending on your market. Before buying, make sure you’re in a stable situation with finances and be prepared for unexpected expenses. No matter your preferences, you’ll be able to find a great spot to call your own.
Finances FYI is presented by 1st Security Bank.
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