Business LifeStyle

Renting vs. Buying a Home: Which One Is Best for You?

Image by Alena Darmel on Pexels

Some believe buying a home is an “investment,” while renting means “throwing money away.” However, there’s more to these nuances than meets the eye.

Choosing between renting and buying is among our most significant decisions. Whichever we choose depends on our personal goals, financial capability, and lifestyle. Both options require essential factors to consider. After all, we’re not just looking for a place—we’re looking for a place to live.

Now that you’re faced with many opinions and market options, which one is worth it?

Understanding Renting a Home

Renting involves an agreement that requires tenants to pay for occupancy in a property. This agreement is a common housing arrangement that allows you to live in a property without owning it.

With renting, your monthly fees are indicated on your lease, which is the contract outlining the terms between you and the landlord. This contract guarantees you (the lessee) the use of the property and the landlord (the lessor’s) regular payments within specified time agreements. You could face legal consequences if you fail to uphold your lease’s terms and conditions.

Sometimes, your rent can increase during renewals. The increase can even be more expensive in specific towns. But some places may have regulations that limit how much landlords can increase rents.

Renting can allow you to move out and find a new place once your lease ends. However, this could also mean you’ll have to suddenly move if the landlord decides to sell the property or turn it into condos. Additionally, some landlords might ask for more than you can afford. These are the reasons some believe renting wastes money because the amount spent will not lead to ownership.

Understanding Buying a Home

Buying aims for home ownership. It involves finding a property, obtaining mortgage financing, making offers, conducting home inspections, and closing purchases. As such, buying enables you to decide your home’s look, feel, and space, giving you a sense of stability.

Owning a home also means building your home equity. Home equity refers to your share of your property’s worth minus its liens (e.g., mortgage). Your equity amount changes over time as debts are paid, and the market impacts your property’s value.

Suppose your home’s current value is $250,000, and your mortgage is $140,000. Your equity would be $110,000. This amount is your share if you sell your property. This is one reason why some consider homeownership an investment. You won’t receive your equity entirely, though, as property sales involve expenses like closing costs.

Furthermore, homeownership tends to be more expensive than renting since you’ll shoulder the following costs:

  • Homeowners Insurance
  • Pest control
  • Maintenance and repairs
  • Utilities
  • Property taxes
Image by RDNE Stock Project on Pexels

Differences Between Renting and Buying a Home

The difference between renting and buying is more than just ownership. Renting isn’t necessarily wasting money, and buying isn’t automatically an investment. Both options require significant costs either way.

Understanding these differences will help you decide what’s best for your needs, lifestyle, and financial capabilities.

Taxation

Homeowners can enjoy certain tax benefits. These benefits include itemized deductions that decrease property taxes, mortgage interest, and other federal taxable income expenses. Moreover, you can exclude the capital gain—within a limit—from the proceeds you make when you sell your home. For instance, you may avoid paying some taxes, allowing you to keep more money once your property is sold.

With renting, however, you’ll get no mortgage deductions. You also don’t have to pay real estate taxes. Regardless, you can claim the standard deductions available to all taxpayers. The same applies to homeowners who don’t have adequate deductions to itemize.

Property values

Many homeowners invest in properties they plan to sell to build wealth. But similar to other investments, significant factors can positively or negatively impact future property values, including:

  • Economic changes
  • Environmental issues
  • Overall condition
  • Maintenance

These aspects can also affect you as a tenant. For instance, your rent can be expensive when a property has appealing and highly-marketable features. Conversely, the negative aspects may help lower your rent. Landlords could be desperate enough for income and choose to slash the monthly price.

Maintenance and repairs

Homeowners are responsible for their properties’ maintenance and repair costs, which can be costly. If you choose homeownership, you must always prepare a budget for these necessities. 

Purchasing a home in a neighborhood with a homeowners’ association (HOA) might be ideal. They can provide community amenities and cover your maintenance and repair needs. However, beware of the potential outlandish association fees, restrictions, liens, or foreclosures.

On the contrary, renting may entail no maintenance or repair costs. Landlords typically assume the costs of these improvement projects to ensure their properties are habitable. These responsibilities may vary based on local laws, so check your state’s regulations.

Commitment

Homeownership might not be for you if you travel frequently or want to make the most of evenings and weekends. It usually requires a commitment to various projects, such as repainting, replacements, maintenance, and repairs. You may not always have time for yourself since you should focus on completing these projects.

Inversely, renting can bring more freedom. You can travel anytime, knowing that maintenance or renovations will continue in your absence. You can also quickly search for a new residence and move without waiting for a new tenant.

Downpayments

Upfront costs are usually better for renters. Tenants often only pay a security deposit equal to one month’s rent. This deposit may be refundable when they move out, given that they haven’t damaged anything on the property.

A significant downpayment is required if you buy a home with a mortgage. The downpayment typically costs around 20 percent of the property’s value. This amount can be more expensive than rental security deposits. For this reason, renting may be best if you don’t have money for a downpayment.

Insurance policies

Homeowners must maintain a homeowners insurance policy, while tenants should have a renter’s insurance policy. A renter’s insurance is typically lower than homeowners, with an average cost of $173 per year. Homeowners’ insurance policies cost around $1,311 per year.

Generally, a renter’s insurance policy can cover almost everything you own at a low cost, including your furniture, computers, and other valuables.
Choosing between renting and buying a home is a personal choice. Understanding the factors of both options will help you assess the pros and cons and make a wise decision. Working with a real estate agent might be worthwhile if you want expert advice.