Renting vs. Buying

Renting vs. buying is a HOT topic in the housing market. Whether you’re moving out of your parent’s house or just looking to relocate, buying a home represents a significant turning point. And you’re understandably anxious to make a good decision.

But how should you determine which option makes the most sense for you? Is it better to rent than buy a home? Often, it’s a simple decision. What could convince you otherwise if you can afford to buy a home?

Yet, at Mirabilis Homes, we’ve had many clients who could afford to buy a home but preferred to rent for various reasons. For others, buying was equivalent to taking on significant debt and working extra shifts for years to pay off the cost. But there are factors other than affordability.
So, are you facing a decision and haven’t been able to solve the rent or buy conundrum? Then there’s good news! Here’s where you’ll find the answer. Consider this a brief but comprehensive overview of the differences and pros and cons between renting and buying.

Let’s start with some of the critical differences between renting and buying.

Photo by Kindel Media from Pexels

Renting

When you rent a house, you pay someone to allow you to live on their property. In essence, you have no control over the property itself or the terms of your lease. Still, it would be naive to think of renting as a waste of money just because you are not in a position to buy.

Renting offers a high degree of stability in terms of the cost of your monthly payments. Therefore, you do not have to worry about interest rates and property prices affecting your expenses. Maintenance, repairs, property taxes, and many other things are included in the monthly payment or security deposit. You assume no liability for whatever happens to the property.

Before becoming a first-time homeowner, many people consider renting the cheaper option because it allows them to save money on the many expenses associated with owning a home. In addition, if you are unsure where you will settle down, renting offers a high level of flexibility. This flexibility comes with a cost, as you never know how much your landlord will increase prices when renewal time approaches.

Buying

Buying a property has some crystal-clear advantages and some not-so-obvious drawbacks. The most important thing about buying a home is the refreshing feeling of ownership. You walk into your home and think, “This is mine and mine alone!” 

There is also a sense of financial stability, something very different from renting. This stability comes from the fact that you control much of your living expenses, and any increase in valuation accrues to you. 

There are some downsides too. The biggest of these is the mortgage. While you no longer have to pay rent monthly, you still have to make monthly mortgage payments. Also, the amount you pay will likely be higher than the rent. However, remember that a share of your mortgage payment goes towards reducing the loan balance, so you are, in effect, increasing your equity in the home. With rent payments, this is not the case, so it is not an apples-to-apples comparison.

Now let’s explore some more specific details.

What Are the Expenses?

More often, renting is considered cheaper than buying because of upfront costs. Buying a home, in many cases, includes a down payment, closing costs, moving expenses, repairs and remodeling, and other property maintenance costs. 

Your friends might convince you that you can afford a mortgage payment so you can afford to own a home. But the costs add up: you have to pay the monthly payment and interest on your mortgage, plus property taxes, homeowner’s insurance, and, in some cases, mortgage insurance and HOA fees.

But there’s a flip side: In the long run, buying a home is almost always a cheaper and far better investment, allowing you to build equity. So, take your time and choose the home you want to buy carefully to appreciate when you want to sell it one day.

In other words, buying a home is cheaper than renting in most areas of the United States. The National Association of REALTORS reports that after 6 years, a homeowner’s mortgage payment is lower than a renter’s – assuming rent increases 5% each year and the homeowner pays a fixed monthly fee.

How Long Do You Want to Live There?

Some people love to put down roots in their community, participate in local activities, and get to know their neighbors. Others eat, sleep, and breathe flexibility. Or at least they’re compelled to make their lifestyle more dynamic.

If you’re in the first category and plan to stay in a home for more than a few years, buying your own home makes sense financially and emotionally for you. Once you buy your own place, you can add personal touches to your property and live your dream.

If you’re more of a nomadic type, renting may be a better option. You can’t always predict every life-changing event, but sometimes you can make decisions based on high odds. So if you’re expecting a career promotion on the other side of the country, you don’t want to struggle to sell a house while transitioning to a new position. 

But that’s not an insurmountable problem, either. If you find a reliable real estate agent, you can buy a house and sell it again within a few years.

Risk Assessment

Every critical decision involves certain risks. Renting and buying are no exceptions. Buying a home offers the opportunity to build equity but also carries some financial risks. For example, if you sell your home earlier than planned, you may run out of money for closing costs or renovations.

There are also home maintenance costs to consider. You sometimes have to pay unpleasant bills to keep your home in the best condition. Repairing air filters and vents, testing fire alarms, and fixing plumbing problems require money.

But if you continue to rent, you’ll never have the opportunity to build equity. And basically, your landlord decides your fate. Your landlord can raise your rent by any amount, ask you to move out, or put off your maintenance requests.

Maintenance/Repairs

Owning a house also means taking responsibility for maintaining the property. And the money spent on these repairs is often not included in housing prices, which means your monthly home payment can increase significantly to maintain a high standard of living.

Costs can change tremendously if the home is part of an HOA community. HOA communities often take care of maintenance and repair costs, but they are limited to some extent. Aside from repair limitations, HOA fees can be as high as a few hundred dollars per month.

On the other hand, renters usually do not have to worry about maintenance. Landlords are responsible for all maintenance and repairs, and once the tenant requests maintenance, they must have it done. Whether they take responsibility or defer is a different issue.

Control Over Property

Tenants have no way to control the property. This is nothing new. After all, they do not own the house. But since you don’t have control over the property, you can not do what you want. So you can not paint the walls, change the floors or the furniture, plant a garden, and so on. In short, personalization is pretty much forbidden.

As a homeowner, you have a say about what should change and what should stay. You determine how your home looks and feels. As a renter, you may have plenty of rooms to live in but no room for change. Even the smallest nail holes can result in a damage claim when you move out.

Long-Term Investment

If you’re a renter, you’ve probably experienced paying your landlord and having nothing left for the next month. Homeownership is an excellent investment because it forces you to spend smarter and save more. 

If you make monthly mortgage payments for 30 years, you’ll end up with a home you can sell. However, with a 30-year rental property, you won’t get any monthly rental payments back. Which option is better?

Buying a home is an excellent investment, but keep in mind that, like any other investment, a number of factors will determine how well your investment performs. Factors such as location, economy, maintenance, and environmental concerns can affect the overall value of your property. And these factors are never static; they can change.

Rents On the Rise

Rental costs have risen to record high levels across the country; for all we know, this trend will continue. The Urban Institute reports that rent growth is outpacing income growth in many markets. 

In many cases, mortgage payments are comparable to or even cheaper than rent because of the high cost of renting. If that sounds like an absurd claim, just use Zillow’s Rent vs. Buy calculator to find out how long it will take for the cost of buying to equal the cost of renting.

Down Payments Can Be a Non-Issue

Too good to be true? It isn’t. Loan and government assistance programs allow qualified homebuyers to purchase a home with a near zero-dollar down payment. Borrowers must meet specific requirements to be eligible.

But don’t worry if you can’t qualify. At Mirabilis Homes, we want to help you achieve financial freedom through homeownership by eliminating the biggest affordability challenges like debt and down payment.

Our INTRO program is designed to give potential homebuyers an easy way to invest in residential real estate and make the most of their resources. Are you ready to begin your journey into homeownership? Contact us today!