Ways to Compare Renting vs. Owning A Home

27 Jul Ways to Compare Renting vs. Owning A Home

Many things can affect how we determine whether to rent a place vs. owning a home. This choice is often one of the biggest financial decisions we face in adulthood, but it can be difficult to tell which is the better deal.

Following the financial crisis of 2008, homeowners and potential homeowners are likely more mindful of the costs  and realistic about how much equity they can build when investing in a home. So, how can you decide if you should be renting or buying?

Why Should I Rent?

• Flexibility. Flexibility can be important for many reasons. If you’re unsure of your financial or employment situation, renting might be a good way to allow you to make a quick move if needed. If you’re considering moving or switching careers, it may not be worth the real estate fees to purchase a home and move within 1-2 years.
• Poor Credit. Your credit score is one of the key factors in determining your mortgage rate, and in part how much your mortgage payment will be. Paying your rent on time for a while can help improve your credit rating and make it cheaper for you to own a home in the long run.
• Avoid maintenance costs. Home ownership has many benefits, but with those come responsibilities.  Maintenance of a home (especially an older one) can be expensive over time. When you rent, any maintenance issues are the responsibility of the landlord, so you’re off the hook.
• Future income gains. Poised for a big promotion? About to get some help from Aunt Melinda? If you’re about to have an increase in income, you may want to rent for the short term until you can purchase a place more in tune with your new financial situation.

Why should I buy?

• It’s Yours. When you buy a home, it’s actually yours. Any upgrades you make add to your investment. You can paint your walls any color and hang as much as you want on the walls.  If you’re looking to “settle down” and feel rooted, property ownership can provide you with a place to call home.
• Equity. When you rent, your landlord is building equity in their investment while you’re paying above and beyond the cost of ownership of the property. When you own, the equity is yours.  A rule of thumb is that if you’re planning on being in a home at least 5-7 years, the costs of purchasing and mortgaging a home will be “paid off” in accrued equity.
• Tax benefits. You can deduct both your property taxes and your mortgage interest.

In the past, the real estate market increases have been stable and dependable. If you’re looking for a short-term gain from investing in a home, it’s probably not your best bet. Either way, you’ll need to remember your goals and consider your costs.