One of the common discussions in the personal finance world is renting vs. buying a house. There is so much back and forth on this, with most of the weight being on buying a house. But let’s take a step back, outside of the sales pitches, and really dive into what it means to rent and to buy. The two options are not necessarily what our culture believes they are.
First of all, let’s keep in mind that these two choices are both morally neutral on their faces. There is nothing wrong with renting, nor is there anything wrong with buying a house. In fact, I strongly recommend everyone get into a home when they are ready, and pay it off as quickly as possible. But just because one is in either situation doesn’t make the situation actively bad in most circumstances.
Now that we have that established, let’s take a look at what the real pros and cons are of renting vs. buying a house. Let’s first start with renting.
Pros of Renting
- You have a place to live if you can’t yet qualify for a mortgage. Contrary to what many people say, there is no waste in renting because you are still getting the benefit of what you bargained for: shelter. True waste would be paying for a rental that you do not use at all. But if you are living on the property, you get to have a place to come home after work each day.
- You do not pay extra for maintenance. Almost all leases include coverage for basic maintenance on the property. This means that if the HVAC or water heater goes out, you’re not the one shelling out thousands of dollars to pay for a new one. That’s a risk the landlord takes, and that potential expense is calculated into the rent.
- You can move fairly easily. Leases often run anywhere from month to month or 12 months for residential real estate (commercial can often be longer). What this means is that a renter has an easier time moving when the lease is up because there is nothing to do but to pack up, clean up, and head out.
Cons of Renting
- You don’t build up equity. This is the biggest criticism of renting, and likely the biggest downside. Though you are still getting shelter, the money you are paying goes to the landlord and not to any buildup of your own net worth. It also means that, in addition to your monthly rent payment, you’ll have to save up extra for a down payment to get into a house.
- You are restricted in what you can do on the property. Leases frequently come with certain conditions that limit what you are allowed to do while staying on the premises. Some landlords may not allow pets, or only allow certain breeds/sizes of pets. You may not be able to fully use the land outside the property, especially in places like Long Island, where homeowners frequently rent out one floor to help pay for the (insanely) high cost of living. Apartment complexes also have limits on what one may do on the premises. These restrictions can be frustrating, especially if you have kids.
- You may have neighbors a bit closer than you’d like. If you can rent a single-family home, this may not be an issue. But in apartment complexes and townhomes/condos, your neighbors’ lives may seep through the walls more than you’d like. That includes things like conversations, parties, televisions, smoke (cigarette and otherwise), etc. Not fun.
Renting has its ups and downs, and the critiques of renting are certainly not without merit. But just because there are some things to critique about renting does not mean the automatic solution should be to buy a house. In the renting vs. buying a house decision-making process, let’s now consider what home ownership entails.
Pros of Buying a House
- You build up equity in the property. All of the principal payments you make go right back to you in the form of home equity. Once all of the principal payments equal what you borrowed (plus interest), you will have the deed to the house free and clear. You can also use the equity to upgrade to a larger home in the future.
- You get to set more of the ground rules. The rules of your house need not be more restrictive than the laws of your state/city (or HOA, if you have one). In terms of the people coming and going, size and number of pets, parking, etc., you have greater say over what can and cannot occur on your property. Ownership means responsibility, but in responsibility there is freedom.
- You have a greater stake in the outcome of your community. When you own a piece of real estate, it’s a symbolic representation of your investment into the community. The way you handle your property reflects your care for your neighbors. If you treat it well, you will play one small part in a broader effort to contribute to human flourishing.
Cons of Buying a House
- You have extra steps to move to another home. As opposed to renting, you’ve got to also offload the house. This means organizing everything, fixing a few things you’ve been neglecting, having a realtor list the home, having strangers come and look at your home, and then convincing them to sign the contract at or above your asking price. (In the 2021 market, probably not an issue). Still, it’s a lot of hassle.
- You pay all the maintenance AND property taxes yourself. Those things the landlord did when you were renting are all on you now. Landscaping, gutters, siding, driveway, windows, roof, HVAC, water heater, that one obnoxiously squeaky door, etc. All of these lovely maintenance expenses are paid for by you. That’s why it is important to have a home maintenance fund when you own. Otherwise, these expenses may sneak up on you and throw you off your financial plan.
- You are more directly subject to property value fluctuations. Right now, we are in a white-hot market (as of April 2021). At some point, things will have to cool off. A correction will occur at some point. When that happens, the value of your home may drop, and if you just recently bought, you may be upside down on the house. If you need to sell when in a bind, that means you may be stuck where you are until the market turns around.
Renting vs. Buying a House: Which is Preferable?
When considering renting vs. buying a house, there are arguments to be had on both sides. Ultimately, home-ownership is something that is an important part of a healthy financial plan. But for a season, renting is perfectly fine.
What is important is that you consider where you are financially, and make a wise decision based on what is right for you. Not for your friends, family, real estate agent, etc.
If you are unsure about what is the best decision for you, let’s talk about how I can help you on your journey. Schedule a free Discovery Session now to start your renewed path to financial freedom!
