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Renting vs Buying: What to Choose

Any grown-up person one day may get haunted by the idea of getting a house instead of renting one. Yes, I know, we’ve all been there: thinking of redoing your kitchen and then remembering that you are just renting this place and you do not have permission to do it.

First, you take your pen and start adding numbers and calculating whether it’s really more profitable to buy a house right here and right now. It’s fair to admit that as of today U.S. homeowners may pay almost 33% less than renters if they take a 30-year mortgage, pay taxes and spend money on the house maintenance. However, it’s important to note that it was 41% a year ago, so it means we’re 8% down and looks like that number is still falling.

We believe it’s time to review the benefits of renting vs buying, compare the data we have and see what will be the best option for you and your family in the long run.

Buying a House Pros/Cons

buying a house pros and cons

Buying a house is a serious step in your life and you need to consider all the problems you may face and review the advantages you get with your own property. There are plenty of reasons to buy or not to buy a house, but we’ll highlight the key points that should help you understand whether you’re ready to buy your own property.

Building Your Equity

Home equity is the difference in the market value of your home and how much you owe. So let’s say you’ve taken the mortgage and the market value of your house went up. You still pay out a fixed mortgage sum, so there is a difference between those two numbers and that difference can be put to a good use, that’s your valuable asset.

There are a few ways to pull out the house equity with a loan and, basically, they all use your house as collateral to secure your loan.

  1. Cash-out refinance
  2. Home equity line of credit (HELOC)

People usually pull the equity loan to pay for the kids’ college or invest in something else.

Getting Tax Benefits

Owning a house is, first of all, a huge investment. Even if you’re not pulling your equity loan, there is always a chance to sell your house later for a better price. But as of today, you are here and you love the idea of buying a house, right? Then you’ll be happy to know that as a homeowner you’ll also be entitled to tax benefits.

First and foremost, the imputed rental income that you receive as a homeowner is not taxed. On top of that, you can deduct your mortgage interest and property tax payments from your federal taxable income.

And yes, that thing about selling the house… you can deduct your capital gains from the taxable income if you’ve maintained that property as your residence in two out of 5 last years.

Monthly Mortgage Payments May Be Lower Than Rental Ones

You should understand that it works only for some cities and states, but sometimes the monthly mortgage payment is lower than the rental payment or, at least, equal.

This is a pretty good reason to prepare the down payment and take the mortgage.

Improve Your Home In Any Way You Want

Owning a house gives you a real improvement freedom. There is no landlord who says what you can and cannot do while decorating and improving your house.

Renovate your property or completely redesign your bath, you can do whatever you want with your own place. This is something worth paying for.

You’re Stuck With The Same House

Unfortunately, despite the freedom mentioned above, when you take a mortgage for a house, you’re stuck with this particular place for a long time. For some of you, it may sound scary and boring, so it really depends on whether you like to change your condo a lot.

Paying The Property Taxes

As a homeowner, you have a lot of tax benefits, but you are also obligated to pay property taxes which is usually collected by the municipal government.

The value of your property tax is determined by multiplying the property tax rate by the market value of the particular property. Market changes a lot and it means that municipalities may recalculate the property tax.

Paying For Home Repairs And Maintenance

The house is fully yours and it means that all the repairs and the whole maintenance process are on you. It’s always fun to call a landlord and ask him to fix a sink, but now you’re on your own and, of course, you pay for all the materials, work process and spend money on keeping your house well-suited for living in it.

Make sure you know all the ins and outs before buying a house in particular area. Do you know the difference between buying a condo in Austin and Tampa? Always do you research.

Renting A House Pros/Cons

Renting a house pros and cons

Taking mortgage and buying yourself a house may really become a great investment. However, not all of us love this kind of financial deals where you owe lots of money for something and you’re about to pay it off for more than 10 years.

Being free from this kind of financial burden is precious, but there are a few more things that you may enjoy while renting a place.

You Can Move To Another Neighborhood Anytime

So let’s say you got bored and your current neighborhood doesn’t make you smile as it did a year ago. Life keeps moving and you can move too… or even… move out! Yes, move out and get yourself another place, shake the things up and change the environment.

This taste of freedom is truly valuable and you should enjoy every minute of it.

Live In The Area You Cannot Afford To Own A House In

Sometimes the reason why you changed the neighborhood is not about you getting bored with your current one. We all love living in the best possible apartment in a great local community, but most of the time these fancy locations have an insanely high pricing tag on the ‘for sale’ houses.

In this case looking for an apartment to rent is the best option for you to become a part of that community or live by the seaside just like you dreamed as a kid.

Maintenance And Repairs Are On The Landlord

Once something is broken, you don’t have to rush and try to fix it on your own. You can pick a priority of the issue and send a maintenance request to your landlord that something is wrong in your place, the sink is broken or lightbulb should be replaced.

That’s it, just a few clicks and the maintenance process has been started.

No Return On Investment

Yes, it pretty much sucks to realize that paying for your current place is not gonna bring you anything in a long run. But at least you don’t have to pay a property tax, worry about your second mortgage and look for the down payment.

You Should Follow The Lease Agreement And Landlord’s Rules

Since the place you rent is not fully yours, there is a need to follow the landlord’s rules and guidelines mentioned in the initial lease agreement. Even though it’s a money-wasting thing, you can save some time by e-signing the lease contract.

You Cannot Change Anything Without The Homeowner Approval

Basically, any change and renovation at your place should be authorized. This makes you feel like a bird with no wings, but no worries. Some landlords offer their tenants to renovate some particular part of the house and, in exchange, the renovation price will be deducted from the monthly rental payment.

What An Average US Citizen Prefers?

Studies show that more and more Americans prefer to rent a place. You may now think that it’s just because these millennials are so carefree and they don’t want to get involved in loans, mortgage pay off, and stuff, but not so fast.

The renters market share becomes highest since the 1965 year, but only 32% of poll participants replied that retting is a matter of their choice. 65% claim that they rent due to the life circumstances and financial issues.

millennials love to rent

This may give us a perfect understanding that the desire to own a place has never left the minds of young and new generations. The majority of them are planning to get a house, once they get a chance, prepare a down payment or start a family.

Big Cities Are Bad For Buying A House

The homeownership advantage for big cities still varies from 20% to 3.5%, but the real problem is that this advantage is about to be erased in 2-3 years.

All the calculations are based on the 4.1% mortgage rate and it’s not staying in the same spot year after year. The historical norm of the mortgage interest rate is closer to 7% and while this rate is slowly growing, the homeownership becomes less attractive for those who live in big cities.

Rent in big cities

That’s why nowadays is smarter to rent if you live in a city with a population of 1 million people and more (like in NYC, for example): Miami, Seattle, New York City, Las Vegas, San Jose, San Francisco and Boston.

Some Cities Are Great For Both Buying and Renting

However, there are a few cities that can be called the real hidden gems, they are valuable due to the fact that they suit well for those who want to buy a house and those who want to rent one.

The list of these cities is not so extensive, but we want to give you a heads up regarding the cities that do not have a confrontation of renting vs buying in 2018:

  1. Wichita, KS
  2. Tucson, AZ
  3. Albuquerque, NM
  4. El Paso, TX

Buyers… Renters… It doesn’t matter what side you’re on, you’ll prosper in each of these cities.

Good for rent and owning

So Should I Buy Or Should I Rent?

As you all understand, these are not the only things that you should think of while dedicating yourself to buying or renting. There is a great Buy-Rent calculator from New York Times that should help you decide what side are you on. You simply put in the requested information and the algorithm will calculate the input numbers and give you a definitive answer on what suits best for you.

 

The final decision is always up to you, cause only you are familiar with your own financial situation and mortgage perspectives, but we hope that we gave you a detailed enough rent vs buy analysis.

Feel free to share your thoughts in the comments section below. Do you consider taking a mortgage or do you prefer a carefree renting-only lifestyle?

4 Comments

  1. My husband and I have rented for a long time, but we are considering buying a house this year. There are a lot of advantages to renting, but after a few years, it feels like we are wasting money on rent. Thanks for explaining how equity works based on the market price of our house. If we buy a house at a good rate, we can start building equity.

  2. There is always confusion about where to buy a home or continue living in rent. But it is always a good choice of buying a home over continue to live in rent if you are looking from long term point of view. You just need to keep some vital points in mind while buying your dream home to make sure that it will turn into a profitable investment.

  3. Food for thought.

    1. I own a $400k house…..if I sell the house and put the money in a safe investment, I’m going to yield around 2%/year. That means I am making $8k/year on that money.

    2. Now….take the $8k from above and divide it by 12 and that gives you a measly $666/month.

    Its easy to see from the above, the ONLY smart thing to do is to BUY/OWN…..if you look back at history, there has never been such an enormous anomaly in this type comparison than now. The caveat and its a big one….at some point, the interest rates will be going up (they’ve been going down for 30 years) and when rates go up, this asset bubble (houses, stocks, collectibles etc) will come tumbling down.

    Its a very precarious dilemma that out monetary policy has put us in….best of luck.

  4. No mention of closing costs when you move. Selling a house can cost $20,000 between realtor fees, buyer required repairs and finance fees/appraisals. Stay in your house 2 decades you are fine, but move every 2 years and you are better off without the mortgage.

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