Increasing rental prices combined with low mortgage rates have made home ownership an attractive option. However, concluding what is best for you may not be so easy. Before coming to a decision, there are a number of factors to be considered. Focusing on your financial situation, let’s explore the pros and cons of both options:
Renting
The Pros of Renting
- In the short-term, it costs less to enter into a rental agreement than a mortgage agreement. Rentals typically only require a security deposit and first month’s rent to obtain.
- There are little to no out-of-pocket expenses associated with maintenance. If something breaks down, be it the garbage disposal or the air conditioner, maintenance is just a phone call away.
- If you are someone who plans to move a few times in the near future, renting allows for greater flexibility in relocating as there are no dependencies with selling or leasing a home prior to a move. Simply give notice to your property manager that you will be moving out, pack your belongings, and move on.
- In some cases, the landlord will pay for utilities like water, garbage, and electricity. This allows you to save a considerable amount of money on the basics.
The Cons of Renting
- There is the conditional security deposit that is typically refundable only if you leave the property in good condition. If you have a pet, you may be required to pay an additional security deposit plus a non-refundable monthly pet fee that can add to the recurring household expenses.
- Rental fees can increase once your lease ends. You may not be able to afford the price hike or moving expenses and deposits associated with attempting to secure a lower priced rental.
- Unless your rental is used in the course of your business, there are no tax benefits with a rented home.
- The ability to remodel or paint your rental is limited in nature or subject to the owner’s approval.
- Long-term, it’s costlier to rent as you forfeit the advantage of building equity.
Home Ownership
The Pros of Home Ownership
- It’s yours!
- Home value most times appreciates. Even if it maintains its value, you can still build equity in your home.
- The mortgage interest and property taxes you paid in the previous year can help to reduce your tax liability.
- You can remodel or decorate your home as you choose without the permission of a third party.
- When detached from its neighboring units, homeownership offers more privacy and quiet.
- If you so desire, you can use your home as an investment by renting it out to create income.
The Cons of Home Ownership
- Not only do you have to get approved for how much home you can buy, but there are the mounds of paperwork to be completed, substantial down payment, and closing costs required to enter into a mortgage.
- You may well be the owner of a depreciating asset when you own a house. There is no guarantee that the upward trend of favorable prices or appreciation will continue. An adverse trend could result in a loss when trying to sell your home.
- Time and resources are necessary to keep the house in good repair. Funds have to be set aside for ongoing and unexpected expenses that are related to the upkeep of the home.
- Relocating may be a bit of a task if your intent is to sell your current home or find a tenant prior to moving.
- The additional costs of mortgage interest, property taxes, and insurance can make for a higher monthly expense.
By any measure, buying or renting a home is a major decision. All the pros and cons should be carefully considered before coming to a decision. But most of all, your financial situation will ultimately determine whether you should buy a home or opt for a rental.