Is Buying Really Better than Renting
Before the financial crash of 2007-2008, the answer to this question would undoubtedly have been yes. The crash, however, completely changed the landscape and injected a large dose of uncertainty into the markets. With the inevitable chaos that followed, the number of people who opted to rent went up.
Owning your home, if you can afford it, has always been a popular goal, but with the decline in affordability, that prize is a long way off for some. According to Danielle Hale, chief economist with Realtor.com, “Only 41 percent of people live in a county where the median income family can afford to buy a home at the median list price.” With the monthly costs of buying and owning a home up 14 percent in the last year (more than 3 times the 4 percent increase in rents nationally), you can start to see why renting is no longer the poor cousin to home ownership.
Given this uncertainty in the housing market, this article examines the pros and cons of buying versus renting to see which might be better for you.
The Pros of Buying
Increase in equity – Home ownership is an excellent way to make money as the housing market recovers. Increasing your equity is a way of affirming wealth. Generally speaking, when the housing market is buoyant people feel better about things and report higher levels of contentment. Having equity makes us feel wealthy and safe.
Put down roots – Home ownership gives you a sense of stability. You are there for the long haul, and that’s fine because you will reap the rewards later when you sell up. Having a stable environment to raise a family is also essential as it reduces the fear of the unknown. If we feel stable now, we’re even more likely to invest large amounts of cash to improve our homes.
Fixed rate mortgages – A fixed interest rate for a given period allows you to feel in control of your costs, and it further enhances that feeling of stability because you can budget sensibly so th at you have spare money at the end of the month.
Tax benefits – The government want to encourage you to buy a property and offer tax incentives on the interest on your loan. Taking advantage of these tax breaks allows you to reduce the running costs of home ownership.
Social benefits – Putting down roots means you become part of the fabric of a community, with friends and neighbors enhancing your social sphere. They say that the measure of real success is not in financial terms but in the number of friends a person has. Putting down real estate roots can foster such friendships because you have committed to one place, one neighborhood.
The Cons of Buying
Market forces – The financial meltdown of recent years provided a stark reminder to homeowners that losing equity is a reality and that the devaluing of house prices can be a disaster. According to CNN Money, house prices in 2008 recorded an 18 percent decrease in one year. The US Census Bureau reports that the average house price stands at around $360,000, so that would mean a reduction of over $64,000 in a single year if the same thing happened today. What this proves is that what goes up must come down at some point.
Staying for the long haul – Be sure that you want to be in one place for a significant number of years. It may be that over time you grow to dislike where you live and want to move, but you have to consider market forces when you do because the housing market may not be healthy and it could cost you a lot of money.
It’s a money pit – Owning a home isn’t cheap; upkeep, improvements, adapting the home to a growing family all cost significant money. And for every dollar you spend you better hope the markets stay strong. According to the website GoBankingRates.com, the average household spend each month tops out at around $1,204, which totals nearly $14,500 a year.
Neighbor problems – Living next to a problem neighbor is more common than you might think. 36 percent of Americans have had an incident with their neighbors that has escalated into a full-blown argument. And 16 percent have moved as a result of a bad neighbor. Even if you choose your home based on the neighbors and the community, things change and people move on. Who’s to say that the new neighbors are going to be as nice?
The Pros of Renting
No maintenance costs – You don’t have the expense of covering any repair costs, and you’ll never have to put your hand in your pocket to pay for improvements to the property. You are still responsible though if the damage has occurred as a result of misuse or abuse.
No property taxes – Not having to pay for property taxes is a huge financial benefit of renting. It frees you up to spend your money on other things.
Freedom to move whenever you want – Renting offers you a roof with very few strings attached. Simply pay the rent each month and settle into independent living. If you get bored or don’t like where you live, you can move at then end of your rental lease.
Not everyone wants to be tied down to one place, especially those seeking to make their mark in the world and embrace the flexibility that renting offers.
Repair your credit history – Often, renting is the best option for those with poor credit as it gives them the breathing space to repair whatever was damaging their credit history. Then, once you are ready, you can seek preapproval for a mortgage to enter the market.
Save for a down payment – Saving for a down payment isn’t easy, but renting gives you the option to save as much as you can so that when you are ready to seek a mortgage you can secure the best deal possible.
The Cons of Renting
Rent increases – As with all things in life, rent can get more expensive over time. It’s a fact that as you approach the renewal date for the rental, often the landlord slaps on a rent increase to cover rising costs elsewhere. At this stage, you have the option to walk, but if you do you run the risk of making yourself homeless. Rent increases are an inevitability and should be factored into your cost calculations.
Can’t put down roots – Unlike home ownership, Many factors affect the risk of losing your rental home. In a stagnant market, it could be that the owner of the house only chose to become a landlord as a way of earning income from a property that was decimated in value due to the housing slump. If house prices recover, then the temptation to sell is so great that few could resist cashing in. Renting might also mean that you don’t feel as attached to the community that you live in because you have to move every few years.
No say on the decor – As a renter, you have to accept that the landlord is the boss and decides your decor as well as the quality of the fixtures and fittings. In most cases, if you want to make any changes, you have to get permission from the landlord. This can leave you feeling like a guest in the landlord’s home without any input to improve the place where you live.
At the mercy of the landlord – What do you do if the landlord refuses to fix or maintain the property? Often we read about unscrupulous owners who let their rentals deteriorate to such an extent that tenants are forced to either put up with it or move. This can have a severe effect on your well-being and could leave you feeling trapped, which is the complete opposite of what renting is meant to do.
No equity build-up – As the market heats up, you could find yourself falling further behind the pace of those already building equity in a home purchase.
Are You Throwing Money Away by Renting?
The idea that you are throwing money away by renting is a false premise. It implies that you are receiving nothing in return for your monthly rent when nothing could be further from the truth. When you rent, you have a home without all the baggage that house ownership brings, and you also have the chance to experience independent living and to make your way in the world without the expenses associated with mortgages and property taxes. With the increase in house prices and the lowering of the interest deduction caps, renting has never looked so appealing.
Timing has a crucial role to play in home ownership. Everything comes down to timing in the end. House price growth always streaks ahead of other markets, leaving the chance of home ownership more elusive for some. There are moments when history favors the buyer, however, like the 2008 crash. Property prices were slashed, with values plummeting overnight. If you had the money, buying while the market was on its knees was financially smart. Buy low, sell high is the saying, and for many the crash represented an opportunity to profit from others misfortune.
Whether you favor renting over buying or the other way round, there are assured advantages and disadvantages for each. Own a home can be a source of pride and accomplishment, but renting offers exceptional flexibility. It really boils down to where you are in life, what you can afford, and whether you are ready for roots or are dreaming of something more down the road of life.