BUY vs RENT: Which is best for you?
Many factors come into play when deciding whether to buy or rent a home. We can help you navigate this process and make the choice that's right for you.
As of the first quarter of 2020 in the U.S:
88.6% of housing units were occupied and 11.4% were vacant
6.6% of rental properties were vacant compared to 1.1% of owned homes
The homeownership rate was 65.3% (an increase of 64.2% from the first quarter of 2019)
Buying a Home
PROS:
Build Equity - Equity is the market value of real property, less the amount of any liens that may exist. You can build equity if you hold the property long enough and it appreciates in value.
Tax Breaks - You may receive tax breaks that benefit you financially, such as deducting your mortgage interest and property taxes.
Make it Yours - You can customize the interior and exterior by updating paint colors, upgrading appliances, adding a fireplace or pool.
CONS:
Damages & Upkeep - You are responsible for the up-keep of your own home and yard. This includes anything that breaks, lawn care, snow removal, etc.
Long-term Commitment - Owning a home is a longer-term living solution, making it more difficult to leave. Keep in mind that the value of your home may decrease over time.
Upfront Costs - Initial costs of buying a home could be more expensive with a down payment, closing costs, furniture, etc.
Renting a Home
PROS:
Damages - If something breaks, your landlord will be responsible for fixing it.
No Maintenance - More often than not, renters are not responsible for general up-keep, including yard maintenance and snow removal.
Short-term Commitment - Depending on your lease, you can leave if you grow dissatisfied with the neighborhood or need to relocate.
Insurance - The annual cost of renters insurance is cheaper than homeowners insurance.
CONS:
Social Restrictions - Renting may come with restrictions such as amount of visitors, parking spots and pets. Some of these restrictions might come with a fee.
Cookie Cutter - You will not be able to customize the interior or exterior, but you may have access to amenities such as a gym or pool.
Upfront Costs - An upfront security deposit and additional fees may be required, as well as a penalty for breaking your lease.
Cost Increases - Rent rates can increase over time. Any money spent every month doesn't net any equity.
Buying Costs:
Buying is cheaper in 40% of US counties
Monthly Mortgage Payments (based on the National Average): $1,500
Annual Mortgage Increase (based on the National Average): 0%
Renting Costs:
Renting costs have gone up in 65% of US counties
Monthly Rent Payments (based on the National Average): $1,468
Annual Rent Increase (based on the National Average): 3-5%
Yearly Costs:
Renting with a 4% increase / Owning with a 0% increase
Year 1: Renting $1,468 / Owning $1,500
Year 2: Renting $1,527 / Owning $1,500
Year 3: Renting $1,588 / Owning $1,500
Year 4: Renting $1,651 / Owning $1,500
Year 5: Renting $1,717 / Owning $1,500
Year 6: Renting $1,786 / Owning $1,500
By Year 2 the rent rate surpasses the average monthly mortgage payment
Additional Considerations
What does your existing debt look like? This will impact the amount of money a lender would be willing to offer.
Do you have an emergency fund? You may need this for unexpected expenses that come along with homeownership.
Do you have savings for a down payment? A down payment of anywhere between 5% and 20% is typically required (depending on your loan.)
Will payments be an affordable percentage of your take home pay? This will be important for managing your money and staying within an appropriate savings vs spending budget.
Do you plan to stay in the area for at least 5 years? It is recommended to stay in a home for a certain amount of time to break even and build equity.
Buying vs renting is both a personal and a financial decision. The above comparisons and considerations can help you choose what makes the most sense for you based on your own unique and timely circumstances.
Sources: iProperty Management, Realtor, Statists, MillionAcres, The Mortgage Reports
