After hours of discussion with my significant other, endless hemming and hawing and going back and forth on the topic of renting or buying, I’ve decided to continue renting for the next few years. The biggest factor in my decision is the mobility issue; I want the option of being able to move to a new area in 2-4 years. Though the housing market is at an all time low, my concern is getting stuck with a property that I can’t sell and may not be able to rent. My ultimate goal in is to own a house eventually, but that “eventually” is looking more like 5-6 years rather than the immediate future. (Update 2016: We’re in the process of buying a manufactured home. We will eventually be able to sell it many years from now and make some of our money back, but we can’t ever rent it. It’s sort of a mix between renting and buying. What are your thoughts on that?)
Reasons to Continue Renting (the Pros)
- Mobility – Unlike a mortgage, I can give my landlord 30-days notice or wait out a one-year lease (or whatever portion is left). I personally don’t like moving, but who does? However, sometimes opportunities arise and having the option to move is a benefit of renting.
- Price – Though my rent is close to many monthly mortgage payments (hey, I live in LA!), it’s still less if I count the money I save on maintenance and property taxes.
- Utilities – This varies, but usually apartment utilities cost less than house utilities (no lawn to water, less heat and air escape, etc.) Some rentals even include a portion of the utilities (however, I haven’t experienced this luck in quite a few years!)
- Less money spent on everyday repairs – I mentioned maintenance in my price point, but even the little things begin to add up. In the past when I’ve lived in apartment complexes, the management would come and change a light bulb for free. I can’t say this happens in many home rentals, but it can save some money in the long run.
Reasons to Buy (the Pros)
- You can make any alterations you want to your abode – Many rentals have stipulations about painting and modifying the property. With a home, you can do whatever your wallet can afford.
- You are building equity (if you stay long enough) – Though many people are upside down on their mortgages if they bought at the peak of the housing boom, history shows that you can make a small profit if you wait it out. A heftier one if you bought when the prices were low, stay for many years, then sell in an up-cycle.
- A set mortgage payment – A 30-year fixed mortgage payment stays the same for the length of the loan. As your income increases, your mortgage payment theoretically seems less expensive and takes up a smaller portion of your overall income.
- You have collateral, increasing your net worth – If you intend to start your own business or need a large loan, a bank looks at your total net worth. As long as you’ve built a little equity in your home, you can use this as collateral for the loan.
- You can write off a portion of your interest – Up to a certain amount, you can claim some of the interest payments on your taxes decreasing your tax bracket.
- A place to live rent-free through retirement – Hopefully, by the time a couple retires, their home is paid off. I’m not really sure how realistic this is, but it sounds good.
What are you thinking?! (the Cons to renting)
- You’re throwing your money away! – There’s no hope of recouping the money spent on rent. However, I have to live somewhere and that somewhere is going to cost something!
- Less collateral other than what you save – As a renter, I now see the importance of saving a large sum of money. If I ever needed a loan, my net worth is much lower than a home owners. However, this forces me to become aggressive with my savings.
- Cost of living increase – Every year, many rental property’s adjust the rent for a cost of living increase. Though the increase is usually small (1-3%), it does add up over time. (But then again, that’s the beauty of renting – you can reduce your living cost if need be!)
I didn’t know I needed a new roof! (the Cons of buying)
- Maintenance and repairs add up – As a renter of an old rental home who has personally invested a few hundred dollars into repairs (my slumlord is lazy!), I can see that budgeting in annual repairs can add up quickly. Without those repairs, the house quickly falls into a state of dilapidation.
- The house you can afford and the house of your dreams are on opposite ends of the spectrum – Not only do repairs cost money, but remodeling can cost tens of thousands of dollars but only return a portion of that in a sale.
- Lack of mobility – If a new job or travel opportunity presented itself, very few homeowners would be in a position to just get up and go. Unless their mortgage is very low or the house is paid off, they’re essentially stuck.
- Utilities – Homes are usually larger than apartments, meaning it takes more energy to cool and heat the house. On top of a lawn or garden, utilities can cost twice as much or more than a rental apartment. (Rental houses sometimes come with a portion of the utilities paid, but not often.)
- Negative equity – Most homeowners probably aren’t in a position of negative equity, but those that purchased a home during the boom years may be feeling a little burn right now; paying a mortgage on a home that is no longer what they bought it for.
Note that I didn’t mention how a home owner is more connected to their community, because I’m not so sure that is accurate or something that can be proven. Or that renters are financially challenged and not as “smart” or savvy as home owners. These statements are subjective and more opinion based than the actual financial pros and cons of renting and buying. I’m sure I missed a point or two, feel free to share something I might have missed. As a side note, I also like using Michael Bluejay’s Rent vs. Buy calculator for a guideline.
Are you a renter who feels like they made the right choice in renting? Does it fit your lifestyle better? Are you a homeowner who thinks that home owning isn’t what it was made out to be? Or are you perfectly happy in your choice?