Owning vs. Renting: What to Consider

Whether or not to buy a home may be one of the most important financial decisions you make in your lifetime. More than simply a roof over your head, a home can serve as a place to plant roots, entertain friends, raise a family and build equity in a tangible asset. But before taking this huge step, it’s important to do your due diligence and weigh your options. For example, is buying the best decision for you now or in the near term, or does it make sense to continue renting?

To Buy or Not to Buy?

Deciding whether to buy or rent will depend on a number of factors, including your current lifestyle and financial situation. There are pros and cons to both: While renting can come with flexibility and fewer responsibilities, ownership can come with long-term equity and stability, among other things.

To help you determine if you’re ready to get serious about house hunting, ask yourself:

• Do you see yourself moving to another city, state or country in the next 3-5 years?

 

• Have you calculated the estimated costs of home ownership in your desired city or neighborhood? (Don’t forget to include maintenance costs and closing fees.)

 

• Have you reviewed your credit score recently?

 

• Are there any other big-ticket expenses you anticipate needing to pay for in the near future?

 

If you are planning to stay in the same place and do not foresee any major purchases or expenses in the coming 3-5 years (e.g., paying off college loans, planned medical procedures, travel), then your financial situation and near-term goals may make you a good candidate to buy. However, when evaluating such a big decision, make sure to educate yourself on your options and seek out the guidance of knowledgeable professionals. Pay close attention to financing terms and take into account the many unexpected and underestimated costs involved in buying a home.

If there is a potential move in your future, or other big-ticket items you’re saving for, then you may want to continue renting until you have a solid understanding of your five-year plan and fewer major expenses to worry about. In the meantime, you can start preparing for when the time is right.

Potential Benefits of Owning

Homeownership may not be for everyone, but it can offer certain advantages. This can include financial benefits such as:

• Potential appreciation, or the ability for your house to increase in value over time;

 

• Potential equity, or the difference between what you owe on your mortgage and what your home is currently worth;

 

• And tax deductions, such as those for mortgage interest and property taxes, which could add up to thousands of dollars.

 

Other advantages include the freedom to make improvements and customizations, pride of ownership, and the potential to create intergenerational wealth by leaving the home to your children someday. 

Potential Benefits of Renting

For many, renting a residence can be a more sensible option for a range of financial and personal reasons. It, too, can have its advantages.

For example, renters are not usually responsible for repairs and maintenance, which can save money, time and hassle. Renting also provides increased flexibility and transferability; you can generally agree to terms of a year or two, or even month-to-month, allowing you to pick up and move as your situation changes. And if you need to relocate quickly, it’s generally easier to break a lease (even if there’s a fee involved) than to sell a house!

In addition, if the property declines in value, that risk is borne by the landlord (owner) rather than the tenant. Depending on the home, rent payments may or may not cost less than mortgage payments. But the savings on repairs, maintenance, taxes and down payment may enable you to save for other financial goals, such as paying down debt or building an emergency fund.

The Bottom Line

So, should you rent or buy? This decision will take some self-reflection and will ultimately depend on your personal preferences and circumstances. Before signing on the dotted line, be sure to think through the potential pros and cons of each option so you can feel confident about your choice.