Should You Rent or Should You Buy?
Does it make more sense to rent or buy? It’s a common question that many people face at some time or another—whether you’re a young professional just starting out or a family relocating to a new area.
It’s also a question without a one-size-fits-all answer. The right answer will depend on where you’re at in life and what you’re looking for.
Comparing the Unique Benefits of Renting and Buying a Home
Many people think if you have the money then home ownership is always the better choice. But that’s not true. For a lot of people in a lot of situations renting makes the most sense—both practically and financially.
Ultimately, both renting and buying a home have their own unique benefits:
Key Benefits of Renting
- Convenience – landlord takes care of things
- Flexibility – moving is quicker and easier
- Fewer overall expenses (no property taxes)
Key Benefits of Buying
- Investment that gains value over time
- More freedom to customize home and property
- Tax deductions for mortgage interest
Buying vs. Renting Checklist: What’s the Best Choice for You?
If you’re stuck deciding between buying a home or renting, go down this list to see what makes sense for you:
Do you have the money to buy? Buying a home generally requires you to put down at least 3.5% up front. So if you’re looking for a $150,000 home, that’s $5,250 at a minimum. You’ll also need to pay closing costs. Those are typically 2-5% of the total price.
Don’t have the upfront money to get the house you want? Keep renting while you save. If money isn’t an issue, buying is a good option.
Are you happy with the area you’re living in? Do you plan on staying there? Do you have a job that may require you to relocate? These are all key questions because with closing costs and other factors it typically takes 6-8 years of ownership to make a profit on a home sale.
If you don’t plan on staying in the area at least 5 years, keep renting. If you’re there for the long haul, buying could be the way to go.
Wants & Needs
What are you living needs? Are you looking for a certain amount of space or number of bedrooms? How about a bigger kitchen or yard? If you’re on the fence about renting versus buying, these specifics applied to your local area can provide the answer.
Research both homes and rentals that have what you’re looking for and do a cost comparison. You can also use these handy online calculators to find out which offers the better financial value in your area over time:
This one is a toss-up. See what gives you more of what you want for the price you want to pay. That can tell you whether buying or renting is the better choice.
What does your income stream look like? Do you have a steady and stable job that you plan on staying at for a while? These are important factors in your choice. Should your income decrease or disappear, you can always find a cheaper rental, but you are financially tied when you own a house.
If your income is stable, home ownership may be a smart investment. If your income is unstable or fluctuating, you may want to keep renting.
Are you home all the time or do you travel a lot? Do you like having the freedom to come and go as you please with as little tying you down as possible? Renting offers great convenience and flexibility for people on the go, whereas owning a home requires more care and upkeep.
If you travel a lot or don’t have the time or money for property maintenance, renting may be the better option for you at this time.
Mortgage rates can have an impact on whether you choose to buy—and when you do it. Right now, mortgage rates are pretty low. But they fluctuate, so that may not be the case for long. Your realtor can tell you if rates are expected to rise or drop—and if it’s a good time to buy.
Can you get a good mortgage rate? Are rates expected to rise soon? If so, then now may be the time to buy.
You may have money saved for your down payment and closing costs, but what do your other finances look like? Do you have a lot of credit card debt? Student loan debt? Car payments? Will your not-so-great credit mean a sky-high interest rate on your loan? Will you be able to make your monthly mortgage payments after you tap into your savings?
There are online calculators that can help you figure out your base mortgage payment. But keep in mind these calculators don’t include everything. Don’t forget to factor in:
- Annual property taxes
- Homeowners insurance
- Increased utility costs
- Utilities you might not pay as a renter like water, sewer, and garbage
- Potential HOA fees
If you do the math and you have enough income to cover all your monthly costs with the added costs of homeownership, then buying a home is a good option for you.
Make the Right Choice for Your Personal and Financial Situation
Answering the questions above should provide you with some clarity if you are on the fence about renting or buying. Ultimately, the answers to some of the questions will matter more than others, depending on your situation. It’s usually a good idea to get the advice of a financial advisor if you are unsure.
Home ownership is great, but it’s also a big commitment. Don’t try to force it if it’s not the right choice for your current situation. Both renting and buying offer good options depending on where you’re at personally, professionally and financially.
Have you been in a situation where you had to decide between renting and buying? What were some key factors that influenced your decision? Share your thoughts in the comments below.
About Ryan Edwards
Ryan Edwards is the owner and property manager for EZR Management. He founded the company in 2006, building on his years of experience managing and renting properties.