Which is Better? • Benzinga

Home renting and buying homes both have advantages. Renting offers greater flexibility and savings on maintenance and repairs while buying offers stability and long-term savings. How do you choose between renting vs buying a home? Some will also weigh buying a house vs renting an apartment. It comes down to personal preference, lifestyle, and finances. Below you’ll find the pros and cons of each so you can make the best decisions for your situation. 

Renting a home entails occupying a property owned by someone else in exchange for regular payments, typically on a monthly basis. When renting a home, individuals or families become tenants and enter into a rental agreement or lease with the property owner or landlord.

Renting offers significant advantages while you’re in the transition phases of life, including flexibility, the ability to explore neighborhoods, and savings on maintenance costs, but it doesn’t come without several disadvantages as well.

Some of the advantages to renting include:

Renting allows you to move as often as needed, yearly or every few months. Renting makes sense while you’re a student, on a temporary job assignment in a new city, or if you want to try out a city or neighborhood before deciding to live there long-term. For digital nomads or people who travel frequently, renting can be a part of their independent lifestyle. 

Renting doesn’t require closing fees, down payments, or other high upfront costs. You might be required to put up first and last months’ rent and a deposit for utility payments or repairs, but overall costs are less than buying. Depending on the rental unit, choosing to rent could help you save significant funds in the long run.

Check your rental contract, but in most cases, maintenance and repair responsibilities fall on the landlord and not the tenant. This frees up both time and money by not having to deal with repairs. Renting also means you’ll have predictable monthly costs because you won’t be faced with unexpected home repairs. 

If you’re moving to a new city or considering a different neighborhood, renting can give you a real sense of living in the area before investing in property. Before committing to a house in the neighborhood, you’ll get to know the schools, parks, cafes, shopping, and other amenities. Moving to a different neighborhood is easier if one isn’t a good fit. Living in a neighborhood can also help you score an off-market deal when you’re ready to buy. 

While renting offers a lot of advantages, here are the (possible) disadvantages:

• You might have rent increases annually or each time your lease is up.
• You may get priced out of your current home.
• You may have to move suddenly if the landlord decides to sell.
• Taken together, renting offers less stability than homeownership. 

Buying a home refers to the process of purchasing a property and becoming its owner. Unlike renting, where individuals or families occupy a property owned by someone else, buying a home involves acquiring full ownership and control over the property. When buying a home, individuals or families typically obtain a mortgage loan from a lender to finance the purchase.

Homeownership comes with significant benefits, from greater stability to long-term equity, but it’s also a big responsibility that can be expensive if you’re faced with unexpected repairs. Here’s what to weigh to decide if buying a home is right for you. 

Take a look at some of the advantages to buying a home.

The biggest advantage of buying a home is the equity you’ll build over time. If you purchase a home for $500,000, as you make monthly mortgage payments, you’re building equity. For example, if you take a 25-year mortgage each year, you’re gaining greater equity in the home until you have 100% ownership after 25 years. Even if you choose to sell, assuming you get fair market value, you should get the equity out of the home to purchase a new property. 

In this way, homeownership is one of the most powerful tools for building long-term generational wealth. With home ownership, you have a physical asset you can pass on to future generations. 

The second reason many people prefer owning is the stability it offers. The landlord can’t sell the property, and you can renovate or decorate however you prefer. This control and stability can give you a sense of permanency and “home” that many prefer. 

You may also qualify for tax benefits through home ownership. You may be able to deduct mortgage interest payments and may be able to deduct local and state property tax from your federal tax return. 

In addition, if you purchase solar or other sustainable upgrades for your home, you could be eligible for the 30% Residential Clean Energy Credit and other state or federal tax incentives. Speak to a Certified Public Accountant about your specific tax situation.  

In addition to paying off the value of the mortgage, you’re essentially locking in your home price at the current price and interest rates. That’s important because real estate is a stable long-term investment that consistently appreciates over time. 

According to the US census bureau, the average home price in 2023 is $516,500. In 1965, the average home price was $21,500. That’s a 24-time increase in the past 58 years. If real estate follows similar trends, your $500,000 home could be worth many times that in the next 30 to 50 years.  

While home ownership offers significant advantages, it’s not without a few disadvantages to consider. Specifically:

• You’ll have extra expenses, including property taxes, maintenance, and insurance. 
• Depending on the rate, interest payments can make up a significant portion of payments in the early years of a mortgage. You might not have much built-up equity if you sell within the first 10 years. 
• You’ll need to spend more time managing repairs and maintenance or hiring someone to take care of them. 
• Real estate is an illiquid asset. If you need to sell quickly or in a buyer’s market, you might not be able to get the full value out of the property.

Whether you should choose between renting vs buying a home will depend on your current financial situation and lifestyle. Here’s what to weigh to make the best personal decision: 

Renting vs buying a home have different financial implications. Renting offers lower upfront costs, assuming you can get a good deal on rent. However, the cost of monthly rental payments may be equal to, or higher than, monthly mortgage payments. 

On the other hand, homeownership comes with additional expenses, from fees, taxes, maintenance, and regular repairs. However, real estate is also an excellent long-term investment to build wealth. Homeownership is almost always a better long-term decision if you plan to stay in one location and can afford the additional monthly expenses. 

When deciding whether to rent or buy, financial factors to weigh include credit score, down payment options, debt-to-income ratio, and available mortgage rates. If you’re working to improve your credit score and pay off debt, it might be worth renting for a year until you have a higher credit score and less debt. 

The extra savings associated with lower interest rates could equal more than $100,000 over the lifetime of a mortgage. For that reason, waiting a year or more to improve your financial situation can be a smart move in the long run. 

Lifestyle and needs can influence the decision to rent or buy a home. Consider location, proximity to work, family size, and future plans to make the choice of buying vs. renting a house. 

For example, renting can make sense if you’re renting close to work and an ideal school district, but you’d only be able to buy in an area with a long commute. Likewise, if you’re saving for a larger home that you can’t yet afford, renting a smaller property while saving can help build savings faster. 

You’ll want to weigh both current and future plans. Do you want to move to a different area, or are you hoping for a promotion? Do you have toddlers but want to move to a different area with a better school district? For many families, renting for some time is the right financial decision, while others settle on a “starter home” to build equity with plans to sell and move in the future. 

Real estate markets can fluctuate greatly and impact the decision to rent or buy a home. Markets are often hyper-local, meaning that one block or neighborhood is a buyer’s market while another is a seller’s market. Zoning in on where you want to live will help to assess current trends better. Speak with a local realtor to understand current micro-markets. 

In addition to real estate markets, interest rates can significantly impact real estate markets. For example, right now, interest rates are high, discouraging buyers from purchasing homes. Currently, interest rates and home prices are at an all-time high, leading to low real estate sales across the US. 

If you choose to buy when interest rates are high, you’ll be locked into a high-interest rate for the duration of the mortgage or until you can refinance. On the other hand, you could rent until interest rates come down and use the time to build additional savings for a downpayment.   

It’s a common myth that renting is just throwing away money each month, but that is clearly not the case. Current real estate markets and interest rates can make it a smart financial move to rent and wait for more favorable conditions. Likewise, building savings and improving your credit score before buying a home can save many thousands over the lifetime of a mortgage. 

Renting vs owning should always be a personal decision that weighs your financial situation with market conditions to make the best lifestyle choice. You can build long-term savings whether you’re renting or buying. Therefore, renting vs owning comes down to what works for you and your family’s goals!