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?
So many people say that they are throwing away money by renting but they don’t realize what goes into being a home owner. There are so many expenses that you can’t even think of and something is always breaking. Usually, rent is sometimes cheaper than mortgages too! Most people here in NY will rent for their entire lives, but while many people think that they’re throwing money away, they don’t realize how much they’ve actually saved over the years.
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@Sandy – I like how you mentioned that renters are actually saving money; the key, though, is to actually SAVE the difference! I know first hand how difficult it is to save a large amount, but it is interesting how people are able to scrounge up the difference to buy, but not to save! I’m really trying to make a point of saving as much as I can with baby steps!
Renting will always be the only option for me.
2. Able to leave any time
3. Cheaper to rent than to buy
.-= FB @ FabulouslyBroke.com´s last blog ..Charitable Donations- When it doesn’t make sense to give your money away =-.
@FB – Excellent points; concise and to the point.
Well, I am a homeowner and I am throwing money away on taxes and endless home repairs. Not to mention my home continues to decrease in value. I am sure it will rebound in time, but for now, I am frustrated.
One other con of renting is if you are renting a house, you are at the whim of the homeowner and may have to move if they decide to sell the house, or take it back themselves. Plus, if you are renting an apt, you have to put up with noisy neighbors and such. (But if you buy a home, you never know what kind of neighbors you are getting either.)
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@Everyday Tips – The point about neighbors is a good one; whether you rent or buy you might have bothersome neighbors. Of course, renting gives you an “out.” As for a land lord taking back a home, or it being foreclosed, that does make renting a little more unpredictable. All I can say is save, save, save for the unpredictable!
@Suba – Since we live in the same area, I totally know where you’re coming from (and vice versa!) It’s tough saving for a down payment since rent in this area is pretty pricey (though not as expensive as San Fran or NYC, but I think we come in 3rd.) I think you’re doing the right thing, though; waiting until you have a down payment saved up, then deciding what you want to do. Not having job security makes it tougher to decide to buy.
As a previous renter, it was nice to live without much, and on a whim move to wherever I wanted. I do like my increase in net worth not that I have a home though.
I think if you can invest on a regular schedule and pay yourself first, rent would be great! The hard part is not tapping that investments 🙂
In your case Little House, I think whatever you do will be fine. You got a great head on your shoulders! So continuing to rent is a fine option for you 🙂
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@Money Reasons – If I can stick to my budget and pay myself first, renting for now is a good option. Long-term, however, buying is better…but that’s in the future!
I’ve owned homes in California for about 30 years and know that the prices will come back. If you’re thinking you will live in the same area long term, than I would recommend being a homeowner.
Our home is nearly paid for and the mortgage payment is 1/4th of a rent payment for the same size home.
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@Bucksome Boomer – I agree that if I could commit to a much longer stay in one place, eventually a mortgage payment would be less than a rent payment. But I really am thinking of moving out of my immediate area in a few years. I don’t think buying a house would benefit me unless I was willing to stick it out for 10 years. Too bad I didn’t buy a house 12 years ago before the housing boom, I would have made a fortune! On the other hand, I’m glad I didn’t buy a house 5 years ago; I’d be underwater!
I’ll make the same point as Bucksome. Length of stay is really important on this one. All things being equal, if someone owns a home over an extended period 7 years, I think they would typically end up ahead financially, assuming that the market didn’t drop substantially. However, buying a home before you are ready can wreak havoc on your finances regardless of how long you intend to stay. I think it is wise and conservative to wait until you have the down-payment save, even though I know it can be painful as well!
@Roshawn – Very good point! A hefty down payment is important. Until I’m ready, I’ll be a renter! Of course, if I still don’t have that down payment saved up in 3 years, I’ll have to start thinking about housing alternatives like the Tumbleweed homes!
I agree that length of stay is important too, but you mentioned it in your post.
I love how you did a pros and cons list.
The most important thing is to save enough for a down payment before you buy, or else you’ll be house poor (which isn’t glamorous at all).
@Young and Thrifty – Thanks for the comment. Now that I’ve lived in both a house and an apartment, I can clearly see the benefits and downfalls of both!
Ahhh, the great debate. At the end of the day, it’s: 1) did you find that money house? 2) can you afford it? 3) do you plan to live there for at least 5 years if not much longer.
We only live once. Might as well live in a nice place!
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@Financial Samurai – I agree that I deserve to live in a nice place (or my definition of a “nice” place). For now that place in an apartment that’s a little larger and much nicer, i.e. cleaner, than the rental house I now live in. I’m just tired of fixing up a run-down house that I don’t own!
Love this post.
I have done both and been a land lord. My preference is to own my home. That said, I live in Australia and we haven’t had our property bubble burst quite like America did, so I am not in an upside down morty, my house has gone up in value.
I hated renting. When things went wrong it would take months IF things got fixed. Plus for me, to rent a house cost as much if not more than buying, so it made mroe sense to buy for me.
That said, you can save A LOT of money if you rent and save or invest the difference. That is the key.
Me, I want to be able to do whatever I want and repairs to be done straight away, so I think I will always be a home owner.
You rpesented both sides really well here! Thanks. 🙂
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@Aspiring Millionaire – Thanks for your POV from Australia. The pros and cons are probably similar, but depending on the housing market in your country sometimes it makes more sense to buy. As for repairs, my landlord is very slow about repairing things, usually to the point where I have to do it myself. However, I’m moving back into an apartment complex in a couple weeks and they tend to fix things right away – making renting more pleasant! Thanks for your comment!
One thing a lot of people don’t think about is doing a 15 year mortgage. I won’t buy a house until I have the money to do a 15 year mortgage because you actually build equity in the house quickly and get lower interest rates at the same time.
@Jennifer – I like checking out buy vs rent calculators, too. It gives you a good idea of whether renting is a better financial option. Of course the trick to being a prosperous renter is investing the difference! I’m still working on that one. 😉