Once the American dream always included owning your own home, but times have changed. Today, many people never own a home, opting to rent instead. Let’s look at the pros and cons of each so you can decide for yourself.
Advantages of Renting
When you rent, you avoid many of the expenses associated with home ownership. If the roof starts to leak or the hot water heater stops working, you don’t have to pay for it. When it’s time for new paint, your landlord foots the bill, not you. This is especially important when you discover that your home has plumbing, electrical or sewer problems or other costly issues like mold and mildew.
You do not pay real estate taxes when you rent and you don’t have to pay a huge down payment to move in either. Many rentals require a security deposit and sometimes your first month’s rent. You pay the same rent each month until the landlord can raise it legally. You pay less for renter’s insurance than you would for homeowner’s insurance too, because you’re not insuring the building. In addition, your utility bills are usually less, because you live in a smaller space.
Renters of larger complexes often have access to many high-end amenities in their building which they could not afford otherwise. It’s not unusual for complexes to have gyms and pools residents can use. You can also move into a less expensive place at the end of your lease if your economic situation changes – you’re not tied to a large mortgage payment.
Disadvantages of Renting
Since you do not own your home, you cannot do whatever you want in the space. You must abide by the landlord’s rules and cannot paint or alter the structure without their permission.
Even though a landlord can only raise the rent occasionally, they can decide to sell the rental unit. Most people don’t relish moving and sometimes it’s difficult to find suitable accommodation within your budget.
You pay your rent every month, but you do not own the property. You’re either paying your landlord’s mortgage or padding their bank account, but you’re not building any equity for yourself.
Advantages of Buying
When you buy a home, it’s yours to do with as you please. You can upgrade, renovate, or sell when you want. Even though you pay mortgage payments, you hope one day you’ll pay it off and own the asset outright.
However, buying a home can also be a great investment. While it’s not a surefire way to build wealth, if you buy a good property in a desirable neighborhood, the odds are in your favor that, over time, the value of your property is going to increase.
Disadvantages of Buying
Owning a home can be expensive. You pay closing costs, fees, taxes, maintenance, and repairs – it all adds up! You’ll pay more for insurance too, because you must protect the structure as well as your belongings.
Recent events in the real estate market show many people want a home so badly that they’re willing to over-extend themselves. This can lead to devastating financial and emotional consequences and often times it is difficult or impossible to get out when you need to.
Experts often suggest the cost of your home should not exceed 20 to 40 percent of your net worth. Basically, you should have 60 percent of your money in investments such as stocks, CDs, and Money Market accounts.
Which Is Right For You?
If you are considering a home as an investment, you need to calculate whether it is worthwhile. You may be able to earn more money if you rent and invest instead of buying. Of course, this depends on several factors.
If your rent is less than what you would pay as a mortgage payment you could invest the difference. If you sink your money into a down payment and pay interest on mortgage payments you may lose the ability to contribute to your investments. You should always ask yourself, “What am I giving up tomorrow by buying this home today?”
You can use this New York Times calculator to determine what’s best for you. Regardless of your decision, you need to protect yourself from loss with proper insurance coverage. Our independent agents can help you balance cost with coverage to protect your assets.