Renting Vs. Buying
Updated September 30, 2021

The Ultimate Guide to Renting Vs Buying

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Whether you are a young person who is moving out or has been renting a home for some time, surely you have given some thought to the question of renting vs buying a house.

Homeownership has been part of the American dream for a long time, but the economic landscape of the last few decades made renting a considerable alternative.

This is a highly important decision that everyone has to make at some point: continue renting, or take the leap and purchase a home?

Today, we are going to explore the benefits and shortcomings of renting vs buying.

We will also cover a neat online tool that will help you compare the financial costs of buying and renting and assess which decision will help you to save big.

By the end of this post, you will have a much clearer idea of whether to rent or buy your next home.

Pros of Renting

There are meaning reasons that make renting the more viable option for a lot of people:

More Flexibility

If you are not ready to settle down yet, then renting is probably for you.

With renting, you can easily move to another place, whether because you found a new job far from where you live or you simply have had enough of your current neighborhood.

Likewise, if you are dealing with horrible neighbors and you feel like you are at your wit’s end, you might want to consider moving.

If you are traveling somewhere and need to rent a home temporarily, you can go to Airbnb and search for listings with fair prices and great user support.

You Don’t Need to Pay a Lot Beyond Your Rental

In the short term, the overall cost of renting is much more affordable than buying a home.

Renting also makes sense if you are not strongly confident in your ability to pay a mortgage debt and don’t want to take chances.

Younger people in the early years of their careers generally prefer to rent homes, as they often lack the stability required to buy a home without getting in financial trouble.

Note that some upfront costs apply: many landlords ask for a security deposit, along with the first and last month’s rent.

But on the bright side, landlords are the ones who pay property taxes as well as maintenance and repairs, so these are costs you don’t need to worry about.

If renting sounds like the better plan for you, you should consider investing in renters’ insurance.

For example, Lemonade renters insurance covers for personal damage, the loss of your personal belongings and living expenses in the case of robbery, fire, personal injury, or other unfortunate events.

While it can seem like a luxury, Lemonade renters insurance is very affordable nowadays and protects you against emergency costs you may not be able to cover.

In short, if you need a place to move to but you can’t afford the cost of buying a home, then renting makes sense.

If you are interested in renting an apartment or a house, you can header over to Zilok and browse the listings.

Zilok allows individuals and professionals to rent pretty much anything, from cars to power tools, electronics, and, as you guessed, homes.

Cons of Renting

Before you start looking for an apartment or a house, you need to be aware of the drawbacks that come with renting.

First, renting is a living expense and, unlike a home, does not provide you with an asset.

In the long term, the cost of renting can end up higher than that of buying a home.

And as long as you are renting, you have to keep paying, whereas a mortgage eventually ends and leaves you with a real estate asset you can exploit as you see fit.

Also, keep in mind that unlike a mortgage payment, a rent is not fixed and can increase over the years.

Plus, there is always the possibility of the landlord deciding to kick you out of his property by refusing to renew your lease when it ends.

So be sure to take in consideration these potential drawbacks before you rent an apartment or a house. If you’re not sure how to go about it, you can always get help.

Pros of Buying a Home

Everyone would love to have a house at some point.

The advantages are very enticing, and above all: buying a house is more than an expense; it’s an investment.

Let’s see what makes homeownership an aspiration for many.

You Have Complete Ownership and Control

A home that you own is a place of utmost privacy and comfort, as well as a source of pride.

It’s also a valuable asset that you can make money with or pass down to your posterity.

But the first big advantage you will have with your home is total control on what you want to do with it.

For example, if you are renting a home, you can’t change the decoration without the approval of the landlord.

But when it comes to a home you purchased, you can change the roofing, upgrade the bathroom, or even merge two rooms together.

You are only limited by your imagination and finances; you can maximize the comfort of your home and make it the perfect expression of your tastes.

You Build Equity

In case you are not familiar with this term, it simply refers to the market value of your home minus the remaining mortgage debt.

This means that the longer you own a home, the higher its equity gets, so your personal wealth potentially increases as well.

Eventually, after paying off the entirety of your mortgage, you can either sell your home or rent it.

Generally speaking, the value of houses and apartments goes up with time.

In the long term, if you are doing well financially, you can even consider buying a second home and renting the first, which would secure you a nice, regular passive income.

Owning a home gives you options in the long run, whereas renting remains a living expense with no long-term benefits.

You Develop a Strong Sense of Community

If becoming a member of a community and making an impact around you sounds interesting to you, then buying a home is the opportunity to do that.

As the years go by, you will develop friendships with neighbors and grow a sense of belonging.

Homeowners also have a say in what happens in the area where they live, as they can attend city council meetings and volunteer for local groups, organizations, and events.

Moreover, the taxes paid by homeowners will fund road repairs, construction of schools, and other infrastructure services and projects.

Cons of Buying a Home

With all these benefits in mind, we should also address the drawbacks of buying a house or apartment.

High Upfront Costs

The amount of money you have to shell out to purchase a home is not to be taken lightly.

First, there is the down payment which usually ranges between 5% and 20% of the home’s purchase value.

Keep in mind that if you opt for a down payment of less than 20%, you may be required to pay for private mortgage insurance.

Other upfront costs include appraisal and inspection fees, title insurance, and escrow fees.

You will also have to pay closing costs and, in some cases, property taxes.

Also, if your friends are too busy to help you move out, you will have to resort to a professional moving company.

On top of that, you will also start paying a monthly mortgage payment.

The factors that determine the mortgage payment include the home’s value, the down payment, the interest rate, and the length and terms of the loan.

Your financial situation is not set in stone and you might encounter some difficulties in paying off a mortgage in the future.

So you have to think about all of these costs and determine whether your current and future financial situation can support them.

Maintenance and Other Costs

Remember that you need to leave some money on the side for the occasional renovations and other costs.

You are solely responsible for your property so if something breaks, you need to fix it.

Also, homeowners have to pay property taxes, either quarterly or monthly. There are also the utilities, wear and tear, repairs, home insurance, and more – all at your expense.

Some Mistakes that People Make When Buying a Home

The uninformed home buyer can end up spending more money than he should.

Buying a home is a big decision that must be made with a keen knowledge of all the factors at play.

One mistake that buyers make is not doing enough research to find the best opportunities.

Likewise, don’t make the mistake of not researching neighborhoods – how safe they are, the quality of schools and ease of transport.

Next, remember that real estate agents are working for sellers first and foremost, as their bottom line hinges on how much their clients make.

So don’t go for the cheapest or the pushiest agent.

Better yet, see if you can afford the market analysis of a buyer’s agent.

Another mistake many buyers are guilty of is blowing all of their savings to buy a home.

Be sure to properly gauge your budget and don’t buy more than you can afford.

Lastly, you should have a budget on the side for unexpected maintenance costs that might arise somewhere down the line.

Where You Live – Now and in the Future – Is a Big Factor

Depending on the location you live in, a home may or may not be affordable.

Some of the most expensive states include Colorado, California, and Washington, DC.

On the other hand, if you happen to live in cheaper states like Iowa, Kentucky, or Kansas, then the option of buying a home is more accessible.

Furthermore, take the time to think about your life goals and where you want to live in the next five, ten, and even twenty years.

If you really have no intention of moving into another city or state, then buying a home makes sense – if you can afford it.

If you’re a born nomad who plans to leave the corporate life and become a lifestyle entrepreneur who travels the world, then renting will be more convenient for you.

What Is a Renting Vs Buying Calculator?

If you have been researching the topic of renting vs buying online, chances are you saw the term “rent vs buy calculator” mentioned somewhere.

A renting vs. buying calculator is a handy online tool that allows you to eliminate some of the guesswork by running comparisons.

You enter information like your location, the home’s price, the down payment (either an amount or a percentage), the mortgage interest rate, the loan terms, and monthly rent to run the comparison.

Some calculators require more information than others, but the parameters above are the most essential ones.

In some cases, the comparison between renting and buying will take the shape of a graphic with two curves representing the average monthly cost of each scenario – renting and buying.

You will see how the curves evolve over the years and determine at which point buying gets cheaper than renting.

Other calculators rely on a survey to assess the best option for you and offer recommendations.

You should try a handful of calculators and enter different inputs to get a larger perspective on the costs and outcomes of both renting and buying.

Using a renting vs. buying calculator will help you run different scenarios to find the one most likely to let you save big.

Renting Is Better for You If…

Here are the top reasons for renting a home instead of buying one:

  • You don’t like the prospect of staying in the same place for many years, and you want the flexibility to move whenever you want
  • Your job is likely to require you to move to another location at some point
  • You are not financially ready to buy a home

Buying Is Better for You if…

On the other hand, you might want to purchase a home if:

  • You have a solid credit history that makes you a good candidate for a mortgage
  • Your income is stable and likely to keep increasing in the future
  • You can afford costs like insurance, taxes, utilities, and maintenance
  • You are interested in the business opportunities of owning a real estate asset
  • You want a place with a strong sense of home and community

If you are considering buying a home, you should do research on the state of the real estate market and how it might change in the future.

Final Thoughts

Deciding between renting vs buying a house is not always easy.

As we saw above, both options have advantages and drawbacks.

The better choice depends on where you are in life and how your situation is likely to evolve.

You also need to consider how much money you will be able to save in each scenario, both in the short and long term.

While doing that, be sure to use the renting vs buying calculators mentioned above.

Between renting and buying, which option do you think is more suitable for you? Which one would you recommend? Let us know in a comment below!


Logan Allec, CPA

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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