One of the first decisions you make when moving is whether to rent it or buy. Both have their fair share of advantages and disadvantages. We’ve consolidated a list here to help you compare the options.
Pros of Renting
Flexibility: There is a lot of flexibility as compared with owning a home. This is especially important when you are first starting out in life, you are living with your partner for the first time, or you are moving to a new city, state, or even country. Since lease agreements are typically 1 year or less, you are able to try out different styles of homes or locations within the city.
Location Options: You might end up living in a location that you could never afford to buy. Renting could help you live in a nicer area of town or an area with better school districts.
Low Maintenance: Landlords are on the hook to keep the property in good working condition. This means you can call one person to deal with issues versus having to source and pay major repairs. Depending on the lease type, the landlord may also be responsible for taking care of any yard work.
Insurance: When we talk about insurance, a tenant is only required to cover the contents of the house. The physical structure of the house is insured by the landlord. Note that you are still likely paying for all of the insurance, it is just lumped into your monthly rental expense.
Cons of Renting
Agreement-Bound: As a tenant, you have no freedom to do what you want with the house. You have to follow the rules of the lease agreement that may indicate you cannot make changes to the property without the owner’s consent. If you break this agreement, at best you lose your deposit, at worst it could result in legal actions taken against you. These agreements also cover whether you can have pets, and more and more regulate the type and breed of pet you can have. Apartment complexes often limit so-called aggressive breeds such as pit bulls and german shepherds.
No ownership: Renting a house does not offer wealth creation or return on investment. Any money you pay to the landlord is helping them to pay off the asset they own.
The price of the property's rent is out of your control. Unlike with a fixed-rate mortgage where you almost always pay the same amount month to month, rental rates can change each time a lease is renewed. This typically happens when interest rates, inflation, or property taxes increase or whenever a rental market is seeing growth in rates overall.
Advantages of Owning a Home
Freedom: As the owner, you can do whatever you want with your property. You have the freedom to customize the house to meet your style.
High ROI –Return on Investment: The price of a house generally increases over time. According to Betterment, owning a home over a long period of time results in an average of 8.6-10% return per year. Note this isn’t a get rich quick scheme. You really do need to own the home for at least 5-10 years to ensure you cover all of the initial investment costs as well as ongoing maintenance. Additionally, this is hugely variable depending on the market you live in.
Disadvantages of Owning a Home
Additional Responsibilities: Owning a house isn't so simple after all. You'll be responsible for financial situations such as property taxes and regular house maintenance. Other costs that an owner has to bear are interest rates and insurance.
Drop in Resale Value: There is no guarantee you'll make a profit after selling the house. The price of a house totally depends on economic factors such as market performance. A homeowner has no control over the pricing of his house.
Buying a home is generally recommended as the wisest long-term financial decision. However, there are benefits regarding flexibility and budget for renting in the short-term.