Whether you should rent or own a home has been a much-debated question for as long as most of us can remember. There are major differences between renting or owning a property, and deciding which one is right for you depends on several factors. It depends on your current lifestyle, current income, current location, and what you’re looking to do in the next few years. You must consider the pros and cons of each. I suggest sitting down and writing out all the pros and cons you can for each, and taking the time to think about what is best for you and your financial future.
Renting Your Home
When it comes to renting your home, the initial cost is significantly lower than owning. There is usually a security deposit along with the first month’s rent. A security deposit is usually half of one month’s rent. This is ideal for young individuals starting out in life when they may not have a large savings account yet.
When you rent, individuals usually have little to no responsibility for maintenance costs. If your roof needs replacing, it is the landlord’s cost, not yours. This also goes for small things within the home; if your water heater breaks, it’s also not your responsibility. This tends to make some people feel more comfortable in comparison to owning their home; if you don’t have a large amount of money saved, knowing the large repair bills aren’t yours provides a sense of peace.
If you’re not sure where you want to be living, or tend to move around a lot, renting is probably better for you. Most leases are yearly or month-to-month, so it’s easier to pack up and leave when you need to. If you owned a home, you would have to go through the process of trying to sell anytime you needed to move.
Although there are many benefits financially of renting instead of owning, you don’t get the yearly tax breaks. If you own your home there are a few tax breaks you get to take advantage of each year. If you rent, your landlord gets the tax breaks not you.
While renting, you do not have any control over the rent increases. Each year, your landlord can choose to increase the rent for your apartment or home. Unfortunately, you don’t have any say in this. While it can only legally be increased by a small percentage each year, it may become too expensive for some people. If this happens, you will likely have to find a new place to live.
While renting a home, you don’t have as much control over what you’re able to do to it. For example, some landlords let their tenants paint the walls, while others do not. It is important to talk to your landlord about what you are and are not allowed to do to your home.
Buying Your Home
If you have decided to purchase a home (especially as a first time home buyer), there will be tax breaks. You will likely have tax deductions for your mortgage interest and property taxes that you can use each year.
If you plan to stay in your home for at least five to ten years, buying a property may be better for you. You will be able to access the tax breaks for your mortgage. You will also have the peace of mind knowing that your mortgage payment won’t increase each year.
As you know, property you own builds equity. If you own your home, you essentially own equity. Upon selling, you could make a profit instead of breaking even or losing money.
Unlike if you’re renting, when you own, you have full control. You’re able to change anything you want in the home without having to seek permission.
Owning a property also provides a sense of stability, security, and community. Knowing that you own your home and that you cannot be asked to leave by a landlord can provide a sense of peace for some individuals.
When purchasing a home, the initial cost is significantly more than renting. You are responsible for a downpayment (usually 5-20% of the home’s cost) as well as closing costs and other fees. Depending on the overall cost of the home, your starting fees can be quite significant.
Unlike renting, if something in your home breaks or needs replacing, you are responsible. Home repairs can be a major cost, and can add a lot of stress if not financially planned for. If you are planning to purchase a home, it is a good idea to have a savings account for repairs.
Also unlike renting, if you own your own home, you are responsible for paying your property taxes each year. The cost of these fully depends on where your home is located as well as the size of the property. If you’re worried about the cost of property taxes, you can ask the previous owner approximately what they paid the previous year.