I’ve wondered about home ownership vs. renting for a long time. I think lots of us think about this early in our careers when we first start to stack a little bit of money together. Is it better to rent or own a home?
This post describes the ups and downs of both home ownership and renting. I’ll also try to answer the question as best I can towards the end of the post.
Benefits and Drawbacks of Home Ownership
Most of us have had the dream of owning our own little piece of the world. Home ownership is a version of that; provided you understand that the bank is the true owner of your home (until you pay off the mortgage).
The biggest feather in home ownership’s cap is financial. Buying a home means that you’re building equity – the market value of your home minus what you owe on the home. To many people, buying a home is an investment in their financial future.
Another bonus for homeowners is customization. Your home is your home, and provided you stay within certain parameters as outlined in your city’s building code, you can do what you want with it.
One potential drawback of buying a home – changing financial markets and predatory lending practices. Do I even have to bring up the 2008 Housing Crisis? Not every home purchase is a wise investment. A 30-year mortgage locks up decades of potential savings in a property that’s not guaranteed to grow in value.
Benefits and Drawbacks of Renting
Okay, so having a landlord breathing down your neck and driving by to squint at you every now and then is no treat. But, if you can deal with the concept of not owning the place where you sleep, there are benefits to short-term rentals.
The most obvious benefit to renting is financial. It simply costs less to rent than it does to purchase a home. Renters pay much less up front than home purchasers. Sure, you’ve got to shell out first and last month’s rent, a security deposit, and maybe a few other fees. That’s still nothing compared to what homebuyers spend at the beginning of a home purchase.
An unsung benefit of renting your home – mobility. You can relocate much easier if you’re on a lease than you can if you own your home. People who change jobs or job sites frequently may not want to deal with selling a house every few years. If a career change is in the cards for you, buying a home may not be wise. For these people, renting makes good sense.
What are the drawbacks? The most glaring one involves your personal finances. Renting means you aren’t building equity. Your rent goes to someone else’s bank account and isn’t earning you a dime.
Another downside of renting – you lose the ability to customize or update your space. I’ve never had a landlord tell me to just go ahead and paint and do whatever I want to their home. While this means your landlord is generally responsible for repair work, it also means you’re stuck with that neon green shag carpet in the living room.
Which Is Better? That Depends …
Okay, so – is it better to rent or to buy?
The answer depends on a bunch of different factors.
The first one is geographic – are rental rates low enough where you live that buying a home just doesn’t make financial sense? That’s the case in lots of American cities. In Austin, Texas, for example, the monthly costs of ownership are about three times the monthly costs of renting. Austin is full of young people at the beginning of their careers – maybe not the best time to settle down and buy.
If you’re a young person working in one of Austin’s emerging industries, renting is probably better than buying.
However, the opposite is also true in some places. In Pittsburgh, you’ll save about $600 a month buying a house instead of renting. People in Pittsburgh who’re ready to put down roots should abandon their lease and get into a mortgage.
Conclusion
If you want to know if it’s better to rent or to buy a home, you need to consider your age, your income, any upcoming career changes, and the financial context in the place where you’re living.
For some people, it’s cheaper to rent. For others, it makes more financial sense to buy.