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Buying vs Renting

June 23, 2012 by     Real Estate

buying vs rentingSo you’ve reached the financial place where you have the tough decision of either buying or renting a home, you may be wondering which is the best route to take. Though there are benefits and disadvantages to both buying and renting, your choice is most dependent on if you are living in the short term or long term point of view. For example, though home prices are low in many places and you could land a great long term deal, you may not be sold on an area or the idea of settling down. However, buying a home now and putting the money you would have spent on rent towards a mortgage can save you thousands in the long run. As Kevin Quealy and Archie Tse of the New York Times explain, “Buying is better than renting after 5 years.” But if you’re not ready to look five years ahead, you may be more fit to stick with renting.

Renting a Home


Many people rent for the flexibility and the luxury of not being responsible for the home’s upkeep. That being said, some of the most obvious benefits of renting a home are the ease of access and the relatively low upfront payments. In many cases you can apply, sign your lease and move in within a short period of time. Your lease documents your monthly rent and fees, and you can easily set up your utilities and get acquainted with the utility bills, making your financial situation predictable and easy to budget. Another aspect of renting that can benefit your wallet is that if something breaks, such as the air conditioner or the dish washer, you’re not financially responsible for the repairs. You can report the issue to your landlord and have it fixed for you.


Renting might seem to be the way to go, but there are several often overlooked disadvantages of this route, the most staggering being that as you continue to rent, you have no protection from the country’s largely increasing inflation. Year after year, rental prices continue to increase to compensate for inflation, meaning 10 years from now if you’re still renting you could be paying twice as much money toward rent as you are now. Other issues with renting have to do with the security deposit: you are often required to pay a security deposit, such as two months’ rent, in advance before you move in, which is money you may never see again if your landlord believes he needs it to clean and make repairs, justly or unjustly. Another reason you may not get your security deposit back is if you break the lease. However, your biggest problem may be the inability to be approved to rent. If your credit isn’t good, your residency application may be denied. Even if you are able to move in, when you’re renting a home you must keep it to your landlord’s standards, meaning you may not be allowed to have pets, park on the road, or paint the walls a different color. A strict landlord may make renting a home a nightmare.

Buying a home


One immediate advantage to buying a home rather than renting is that in many cases, you may be spending a similar amount of money on your mortgage as a renter is paying in rent, but while their money is going towards short term living, yours is going towards home ownership. Also, now is a great time to buy a home. Prices are much lower than they have been in a long time, and in many areas, the housing market is improving, meaning your new home’s value will rise. Though it may cost more upfront to purchase a home, you can often make tax deductions which can help you financially in the long run. Also, buying a home gives you some protection from rising inflation. This is because, with a fixed-rate mortgage, you can put down about 20% of the money for the asset (your home) upfront, and your lender pays for the other 80%. The asset being purchased, you are now just paying your lender back for the money he has lent you. As inflation rises and the cost of the home rises, this wont affect you because your home has already been paid for by the lender and yourself. Purchasing a home also allows you to lock in an interest rate, meaning if interest rises alongside inflation you will be unaffected by both of these conditions.


Though owning a home might sound empowering, there are still some financial disadvantages that come with this new responsibility. For example, While you didn’t have to pay for upkeep and repairs when you were renting, now the functionality of your home is dependent on you. You may also acquire new fees, such as a property tax, home insurance, and Home Owner Association (HOA) fees. Another disadvantage to owning a home is the inflexibility of it. If you don’t like the area or the neighborhood, you may feel stuck, not wanting to take on the extra costs and stress of selling your home. This is why if you’re planning on purchasing a home you should be comfortable with the idea of staying in one area for at least four or five years before you make your final decision.