An overview of owning vs. renting
The decision to rent or buy the place you live in is a significant decision that must be taken seriously. It not only affects the amount of money you would be left with after every end of the month, but it also affects your lifestyle and how much money you save over the years.
We see people buying homes every day while there is an option of renting. To them, owning a home provides them with a place to put down roots, and it is also a significant investment. On the other hand, other people choose to rent because of the flexibility and minimal responsibility that comes with it.
Of these two options, owning a home is usually the most preferred because it favors many people, from mortgage lenders to realtors and home improvement stores. And not to mention the hype associated with owning a home. However, owning is not collectively better than renting, nor is renting easier than owning. You must consider the pros and cons of each option to know which one suits your needs.
When it comes to renting, you can easily move each time your lease ends. You can also move out unexpectedly if the landlord decides to sell the house, increase the rent to an amount you cannot afford, or turn the apartment into condominiums.
The most common myth associated with renting is that the tenant “throw away money” every month. This is not true. For starters, you need a roof on your head, and that always costs money. Secondly, although you are not building equity with your monthly rent payments, neither will you build equity with the significant amount you will put into owning a house.
When you rent, you precisely know how much you will be spending on housing every month. When you own, your monthly payments may vary. You can pay your mortgage and usual bills for one month and an additional amount for a new roof next month. But when it comes to renting, you don’t pay for roof replacement because that is the landlord’s responsibility. Your monthly, home-related expenses like renter’s insurance are usually more predictable.
However, as a renter, your rent can be unpredictable. It can increase particularly when your lease is approaching renewal unless you live in a city that has rent control, and the apartment you live in is covered by it.
Although homeownership is usually perceived as a way to accumulate wealth, your home can lose value, in fact, a lot of value. The neighborhood you bought your house in could decline. Too many residential houses could be constructed hence lowering the prices. All these factors can reduce your home value.
Another bit of vague wisdom is that a mortgage can help you get the tax deduction. Although it’s true, a home mortgage interest deduction can reduce your mortgage interest expenses early in your loan term as long as you itemize it. But tax deductions cannot be a reason to buy a house. Of course, when you rent, you don’t get mortgage deductions, but you can take the standard deduction which is available to all taxpayers.
If you like using your evenings and weekends as you please, work long hours, or travel most of the time, then homeownership may not be your thing. That’s because of the commitment that comes with it. There are often projects around the house that needs your time, from looking for a plumber to repair your leaking pipe to repainting the living room. If you are lucky to reside in a neighborhood with a Homeowners association, then they may handle all these tasks on your behalf but at an extra cost. But if you rent, your landlord will handle all the repairs and maintenance.
Homeownership offers many intangible benefits such as belonging to a community, a sense of stability, pride of ownership, etc. However, this option is not suitable for restless people and those who are always on the go. Real estate is not a liquid asset. When you want to sell the house, you may not be able to, especially if the housing market is low. Even if it is high, there are substantial transaction costs that you must factor in when you want to sell your home. Additionally, the decision to change where you want to live is more expensive when you own.
The total cost of ownership is typically higher than the total cost of renting, even if the mortgage payment is equal to the monthly cost of renting.
Some of the expenses you will be spending money on when it comes to owning a home include:
- Property taxes
- Homeowners insurance
- Water and sewer service
- Trash pickup
- Pest control
- Repairs and maintenance
- Pool cleaning if you have a pool
One of the most considerable expenses is mortgage interest, which can take a significant percent of your paycheck. Again, renovation projects may not always increase your home value by more than what you spend on them. According to Remodeling Magazine, you will get back 66 cents for every dollar you spend on a home improvement project.
Once you have added all these costs, you will find that financially, you are better off renting.
Special factors to put into considerations
Choosing the best option suitable for you is not just based on money. It’s about your preferences in life and comfort. Learn to ignore people who tell you that it is better to own than rent or that renting is throwing your money. Housing markets and life circumstances are very varied, so to each his own.
Notwithstanding the added expenses and additional costs associated worth owning a home, many people are still likely to choose it instead of renting. Homeownership provides a permanent place to raise a family. It also offers the only way to create the kind of residence you want. At the end of the day, the decision to rent or own is not just financial; it’s emotional as well.