To Rent or to Buy

For many Americans, buying a home marks the biggest lifetime investment they will make. While home ownership can be rewarding, the rent versus buy decision must be carefully considered. Specifically, owning a home will not make everyone happy, not everyone desires to own a home, and not everyone can afford to own a home. Renting verses buying a home is a personal decision that should be driven by financial situation and life goals, both of which are unique to each individual. You need to consider the advantages and disadvantages, along with other variables, that may impact your own rent versus buy decision.

Advantages: Rent vs. Buy

Rent - There are less upfront costs associated with renting. Additionally, renters have more flexibility. Without the commitment of a long-term mortgage, renters are more able to move around and explore different locations. This can be advantageous for those who are in a job that requires frequent relocation or for those who enjoy exploring differing cities and new neighborhoods. Renters can also avoid housing costs and repairs that are synonymous with home ownership. While many preventative maintenance and home repair costs are largely dependent on the age and condition of a home, other costs are necessary to preserve home value.

Buy - One of the biggest advantages in buying a home entails the potential to build equity and to achieve ownership of the home once the mortgage is paid off. What’s more, with a fixed-rate mortgage, the monthly payment will remain the same for the life of the loan. An investment in real estate can be a good hedge against inflation in a couple of ways. First, inflation can force the property value to increase over time while the fixed-rate mortgage payments remain the same. Second, for those in a position to rent out your home, higher home prices can equate to higher rental values and more income that can be earned.

Disadvantages: Rent vs. Buy

Rent - Renting a home is not without drawbacks. As is the concern for many renters, there is a possibility of getting stuck with bad neighbors. What’s more, without control over your living space, you may be prohibited or restricted from making any changes. Landlords typically can and will raise rent at the end of a lease term. This is most favorable to landlords when market values have increased or property maintenance expenses need to be addressed. Lastly, renters are unable to build equity, are at the mercy of the landlord, and can face eviction.

Buy -The upfront costs of buying a home-the down payment, the realtor fees, and the closing costs-can be a barrier to entry. Unlike rental properties, home owners are completely responsible for repairs and maintenance. While inflation can positively impact the appreciated value of a home, it is also possible to have a realized loss on the sale of the property if housing values decline.

Rent vs. Buy: Variables Impacting Your Decision

In certain markets, renting is the cheaper solution to buying a home due to rising interest rates, increasing home prices, and large down payments. Furthermore, mortgage rates continue to climb, which means higher mortgage payments. In major cities, where housing prices are at all-time highs, rental prices may be more attractive than monthly mortgage payments. Conversely, in areas of the U.S. where down payments are not costly, it may be cheaper to buy a home rather than to rent one. Nonetheless, the rent versus buy decision needs to take into consideration not only where you choose to live, but also needs to align with short- and long- term financial goals unique to only you.