Many people who rent feel trapped by rising costs and the feeling that they can’t afford to buy. Others think that buying would force them to stay in one place, or that taking care of a home and yard would take too much of their time. Home owners might have their own list of pros and cons, or they swear they would never go back to renting. If your lease is almost up, this article can help you weigh the pros and cons and decide what to do next—rent again or buy.
What Are the Projected Costs
Renting: The cost of renting has been rising since 1988. According to ApartmentList.com, since January 2021 “. . . the national median rent has increased by a staggering 17.8 percent. To put that in context, rent growth from January to November averaged just 2.6 percent in the pre-pandemic years from 2017-2019.” The 2022 National Housing Forecast projects prices for new leases will continue to increase this year by 7.1 percent, somewhat ahead of home price growth.
Buying: The cost of homes has been rising, but with a fixed-low-interest-rate 30-year mortgage, your payment will remain the same for the next 360 months, while your investment is likely to grow. If you’re planning to make a move this year, locking in your monthly payment for 15-30 years can be a major benefit. You won’t have to adjust your budget to account for annual rent increase.
What Are the Perceived Benefits of Renting
- Mobility: If you’re an upwardly mobile worker in an industry that demands frequent relocation, renting can be the right call.
- No maintenance costs: If an appliance breaks or you need a new roof, your landlord is legally responsible.
- No yardwork: Some people like to work in the yard, but if you’re not one of them, as a renter you’re less likely to be responsible for upkeep on what is outside.
- No property taxes or HOA fees: Your rental cost includes these.
- No down payment: You will probably have to put down a deposit or even a month’s rent in advance, but it won’t come close to the 5-20 percent you will put down for most mortgage loans. Utilities included: In some cases, the cost of utilities is rolled into your monthly payment.
- Your income is not as much of a factor: Unless your rental is subsidized for low income, your credit report will likely be more important than the size of your salary.
- You don’t have to take on DIY projects: If you prefer to have someone else do the repairs, painting, or make other improvements, then you just have to hope you have a reliable landlord.
- You don’t have to pay the transaction costs of buying and selling: See our article “The Cost of a Home Is More Important than the Asking Price.”
What Do Homeowners Like Most About Their Choice
- Stable monthly payments: If you lock in your interest rate for 15 or 30 years, your monthly loan payments will remain the same for the length of your contract.
- Enforced savings: The portion of your payment that goes toward the equity in your home is like a savings account that grows every month and increases with the value of your home.
- Customizing your surroundings: This is a big decision-making point if you want to be able to paint, renovate, and make your choice of home upgrades. You have the freedom to decorate and personalize your home and yard to make them feel like home.
- Stability for your children: In general, the evidence seems to show that homeownership is a better environment for children, according to a National Institutes of Health’s sponsored study that refers to the “intangible benefits” of homeownership among differing income classes.
- Community involvement: If you own a home, you may be more likely to connect with and have more interest in the people in your community. Homeowners usually have more interest in voting, volunteering and participating in civic activities.
- You can have a pet: As a homeowner, you won’t have to worry if your next landlord will let you keep your cat, dog, or even a more exotic pet.
- Your monthly payment is an investment: In addition to the amount you pay toward your home’s equity, the latest Homeowner Equity Insightreport from CoreLogic shows the average homeowner gained $56,700 in equity over the last 12 months. Even if your home value remains steady, you are still forced to pay yourself every month and add to your wealth.
- You can park more than one car or store a recreational vehicle on your property.
Owning a home may provide greater mobility than you think: You may choose to rent because you feel it provides greater flexibility, if you need to move for any reason. While it’s true that selling a home may take more time than finding a new rental, it’s important to note how quickly houses are selling in today’s market. According to the National Association of Realtors (NAR), the average home is only on the market for 17 days. That means you may have more flexibility than you think if you need to relocate.
The length of time you plan to stay in one place: This is perhaps the most important factor in your rent vs. buy decision. The deeper you want to put down your roots, the more it makes sense to own your home. But other factors come into play: The economic health of your hometown or state, your financial discipline and your skill at home improvement projects are just a few.
A tax break on your investment when you sell: You pay no capital gains tax on the profit you make when you sell your home, up to a limit of $250,000 for single taxpayers and $500,000 for married filers. That could make your home a very wise investment.
Location, Location, Location: In the nation’s priciest housing markets, homeownership could appear out of reach for many. If you have an average income, renting might be your only option—unless you move. Consider a comparison with low-cost cities, such as Cleveland, Detroit and St. Louis, where you can earn less than $35,000 a year and afford a median-priced home. However, you may want to avoid buying in an area where you think the economy will decline or remain stagnant in the long run; the value of your property will reflect the region’s economic health.
The Bottom Line
Deciding if it’s the right time for you to buy or to rent is a personal decision, and the timing is different for everyone. However, if you’d like to learn more about the benefits of homeownership, we can put you in contact with a local real estate professional. He or she can help you make a confident, informed decision and be your trusted advisor along the path toward homeownership.