How many of you have heard the adage that renting is just throwing money down the drain every month? Probably most of you. However, it’s important to take a serious look at both sides of the coin when determining whether renting, or buying is better for your own personal situation.
First let’s start with renting. The phrase comes from the idea that you’re paying a monthly fee without any ownership coming out of it. Additionally, when you look at just the mortgage payment versus rent, rent can seem extremely high depending on your geographic location. However, while these points may be true, there are situations where renting makes more sense. Most who argue that rent is more expensive fail to include the extra expenses that come along with owning, in addition to the principal of the mortgage payment. When you take into consideration down payments, homeowner’s insurance, possible flood insurance, real estate taxes, and general property maintenance costs, the dollars add up quickly making rent a potentially cheaper option, with much less responsibility. Additionally, if you’re a particularly transient person, rent has the appeal of the ability to break a lease, with fees, and move on relatively easily.
So, what about home ownership? For the many reasons, owning a home can be costlier, with numerous obligations coming along with it. When you rent, you’re usually not on the hook for anything that breaks in the rental property. With ownership you know if the air conditioner breaks, or the refrigerator goes out, it’s all your responsibility to make repairs. Furthermore, some people find it difficult to come up with the upfront costs of purchasing a home such as down payment and any closing costs. Without a sizeable down payment, you may have to include PMI (private mortgage insurance) in addition to the mortgage payment. And, if you don’t plan to stay in your home more than a few years, you may end up losing money by not being able to spread out the initial costs over time while allowing your home to appreciate.
Still, even with these reasons considered, there are situations where owning still outweighs renting. Owning a home can be a great investment, especially if you’re purchasing a home within your means and at a reasonable price that can increase in value over time. Further, depending on your state of residence, owning may offer valuable tax advantages that you wouldn’t otherwise have with renting. And to loop back to the adage that began this, after your mortgage is paid off, you have something tangible that you own.
Ultimately, it comes down to your situation. What works for someone else may not necessarily work for you and vice versa. Taking all the positives and negatives into consideration during the decision-making process will help you to decide what is best, both personally and financially.