Are you moving soon and trying to decide whether you should rent or buy a home? Choosing between the two is a major decision that affects your lifestyle and financial health.
I’m a big proponent of homeownership, but I also recognize that it’s not for everyone. To help you decide whether to rent or buy a home, I’ve put together a few pros and cons of each.
Renting a home: advantages
Thinking of renting a home? Here are three reasons it might be perfect for you!
1. Fewer costs & responsibilities
When you’re renting a home or apartment, you’re only responsible for paying your monthly rent and any utilities that aren’t included in your lease. That means you’re not on the hook for costs that most homeowners deal with, like property taxes, general home maintenance expenses, and repairs.
You also don’t have to make those repairs if they happen. For example, if the roof starts leaking, you just have to call your landlord to have it handled.
2. Lower upfront costs
Purchasing a home comes with a lot of upfront costs, like an inspection, appraisal, and down payment. Many rental properties, on the other hand, don’t include any upfront costs. At most, you may have to pay an application fee or a security deposit before you can move in. And, you should be able to get your security deposit back if you keep the property in good condition during your time living there.
3. Relocation flexibility
Because leases are designed to be short-term, you’re not tied to the location if you need to move suddenly. If you want to take a new job in a different city, it’s pretty easy to do when you don’t have to sell your house first.
Renting a home: disadvantages
Now that we’ve looked at some of the reasons to rent, let’s examine some of the potential pitfalls.
1. The landlord calls the shots
Your landlord can make decisions that affect your living situation without asking for your thoughts or feedback.
If they decide to sell the home or otherwise make it unavailable to rent, for example, you’ll have to find somewhere else to live. When you’re signing your lease or rental agreement, make sure you check to see how much notice your landlord must give you before selling the home.
Your landlord can also raise the rates to keep up with other rental prices and demand in the area. They might also increase your rent to cover any increases in their property taxes. Once your original lease is up, you might have to decide between paying more each month or finding a new place to live.
2. Limited customization
When you’re renting, you might not have much flexibility when making upgrades to the space. Some landlords won’t even let you paint the walls or put holes in the wall for artwork without approval (if they even let you at all).
And if you do make any changes to the home, you will also probably have to put everything back the way it was before your lease is up or risk losing your security deposit.
3. You’re investing in someone else’s future
Your monthly rental payments go directly to your landlord. Even if they have a mortgage on the property, your payment goes toward your landlord’s mortgage payment. That means they’re gaining equity each time you pay your rent and as the property appreciates. You, on the other hand, receive no benefit of equity or ownership.
Owning a home: advantages
Let’s switch gears and look at some of the advantages of owning a home instead.
1. Location security
When you own your home, you get to decide how long you’ll live there and when you want to sell it. That makes homeownership great if you need longer-term security in a fixed location.
2. Payment security
If you have a fixed-rate mortgage, your monthly payments won’t go up every year. Sure, your property taxes and home insurance might fluctuate, but your combined principal and interest payments will remain the same as long as you own the property. Good news: With each payment, you’ll be putting more toward your principal because your interest will decrease!
3. Ability to customize & renovate
When you own your property, you can make all your home design dreams come true. That means you can change anything you like, from painting to changing light fixtures or even removing walls.
As you make improvements and renovations to your home, you may also increase its value (depending on the type of work done). That could be hugely beneficial if you decide to move or refinance in the future.
4. You’re investing in your future
Each time you make a payment toward your principal balance, you’re building equity in your property. Furthermore, as your property value appreciates, you’re also gaining more equity.
- Equity is the current market value of your home minus the remaining balance of any outstanding loans on the property.
- Appreciation is the market’s influence on the value of your home through demand, inflation, or a combination of the two.
Building equity is great because you can capitalize on it in the future. If your home value goes up, you can take advantage of the higher value when you sell your home. Then, you can use that equity toward your down payment on your next home.
Owning a home: disadvantages
Owning a home isn’t all fun and games, though. Check out these disadvantages of becoming a homeowner.
1. Full responsibility & expenses
With homeownership, you’re on the hook for everything. You’ll have to cover all the costs of owning your home (your mortgage payment, property taxes, and utilities) and any upkeep and maintenance costs. If something breaks, in other words, you’ll either have to fix it yourself or hire someone to fix it for you.
2. Rooted to the location
It’s not as easy to just pick up and move when you own a home. If you receive a great job offer in another city, you’ll either have to sell your house first or convert it to a rental property. Both of which could be a time-consuming process.
3. Higher upfront costs
When you’re buying a home, not only do you have to qualify for a mortgage, but you also have to pay quite a few out-of-pocket expenses right away. Those costs include:
- down payment
- closing costs
- property taxes
- homeowners insurance
Even without taking your down payment into account, those costs can quickly add up to thousands of dollars.