First and foremost, there is no universal yes or no answer to this question seeing that real estate is in a constant flux and just the thought of finding a place to live can be overwhelming for some.
Given the hefty upfront costs associated with purchasing a home, most young people begin their independent lives renting an apartment. As they build careers, save money, and start families, many choose to buy a home. On the other end of the age spectrum, homeowners nearing retirement may choose to sell their family homes, downsize, and become renters once more.
Many things go through our mind before a decision can be made - the first question is, "Should I buy a home or should I rent one?"
Before taking the big step, you'll want to consider what is best for you in the long run. Due to American culture idealizing homeownership to a certain extent, emotional and social pressures can affect the decision almost as much as financial concerns. Starting with "How much are you willing to spend buying home or renting a home? Which is a better investment for me?" can help alleviate some uncertainty.
Here are the common "Pros and Cons" of both sides.
Pros of BUYING a Home:
- As mentioned on our previous blog, 3 Reasons You Should Own a Home, owning a home offers the long-term benefits of security and potential growth in personal wealth.
- Freedom! A complete feeling of being free, in renovating the property, redecorating and a having a peace of mind.
- Privacy: The feeling you can only get when you own a home.
- Building Equity: As a home-buyers you can take advantage on the equity over time. That means if the home value goes up, you could cash in on the higher value when you sell. Plus, with a fixed-rate mortgage and you don't have to worry about increasing rents.
Cons of BUYING a Home:
- Homeownership is a long-term financial commitment.
- Maintenance: When purchasing a home, you are responsible for all the maintenance. Though your exact outlay is likely to vary from one year to the next, you can expect to pay at least 1% of the value of your home annually toward these expenses. For example, if you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you have to replace a costly item.
- Owning a home ties you to your community, making it more difficult to suddenly pick up and leave a location.
- Based on research by David Brickman, CEO of Freddie Mac -"For Millennial's and many Gen Xer's, buying a home is no longer just a decision based on housing and housing costs — increasing pressure from student loans and the rising cost of child care are having a significant impact.” or simply, buying a home for Millennial's is less likely an option due to the cost and lack of flexibility gained from renting rather than buying.
Pros of RENTING a Home:
- Flexibility! As a tenant, you have the freedom to move in/out whenever you want - anytime and anywhere.
- Depending on the property and/or landlord, your landlord, not you, is responsible for performing nearly all maintenance and repair work on the property.
- If you are planning to rent a home, renting usually costs less in short-term because there will be no upfront costs and no property taxes to be worried about. Renting a home can be cheaper than buying a home. Your payments tend to be lower than a comparable house payment.
- With homeownership comes responsibility, while renting may be relatively carefree.
Cons of RENTING a Home:
- As a tenant you are "bound by the lease agreement", meaning you're tied in to your landlord's rules. If he/she says there are no pets allowed and no visitors during a specific time, as a renter, you must stay in compliance with the agreement or risk being fined or worse, being evicted.
- Increasing rents: When your lease runs out, your landlord is free to increase the rent—and they often do at a rate that outpaces inflation. This usually happens in competitive housing markets like Seattle.
- Renting DOES NOT provide you with the opportunity to build wealth and gain a return on your investment, since the property does not legally belong to you. You may be building the equity on the property, but the property owner will gain the rewards. Simply put, you are paying someone else' mortgage and insurance.
Here are the factors to consider when comparing buying to renting a home:
- Homeownership is a lot of work - it is not for everyone.
- Homeownership requires you to have a stable or growing income, especially in those first few vital years.
- Financial benefits of homeownership are long term.
- Your credit score will impact how much you can borrow and at what terms.
So ask yourself, which one is better. Is it Renting or Buying a home?
We all know that money plays an important role in both decisions, whether buying or renting. You also need to consider that both options have their good and bad factors or fundamentals.
But nowadays, most people generally prefers owning a homes rather than renting because when the mortgage rates are low, and rent increases in big cities, buying a property is likely the better option as owning a property provides a more permanent and secure place to live and build your life.
John Spence, a known musician once said - "Don't think of the cost, think of the Value."