Here is the honest truth about renting versus buying. The popular line is you are just throwing your money away renting when you could be paying yourself! Right? I know all the investing books I read seemed to tout that line. It, however, is so much more complicated than that. So here it is the nitty gritty, no slanted views, pros and cons to owning versus renting.
–You have more freedom. Leases can somewhat limit this, but you are not tied down. You don’t have to be in a good seller’s market to leave quickly. If you get a new job and the commute is far, just move. Want to take a three-month sabbatical traveling? Just plan it between moves for no at home costs.
-Simplicity. You get to pay one lump sum for many housing needs. Maintenance? That isn’t you. Property Tax? Included! Sometimes even your utilities are included. Does something need a repair? Just call! No stress for you, one less thing to think about.
-Amenities. If you are renting an apartment, you get access to many luxuries through communal space. Pools, Gyms, Lounges, and more. Houses with those amenities can increase price drastically.
-Low upfront costs. An application fee, a security deposit. These can be very small compared to the upfront fees of purchasing a house.
-You have no control. A landlord can choose not to renew their lease with you, and you will have to find someplace new.
-Your rent will increase. Your rent should keep pace with market conditions and likely will go up unless the property is in disrepair.
-Does not build net wealth. You are building someone else’s net wealth not your own.
-You have control. While HOAs (Homeowners associations) if you are in one, lenders, and the government has some say on your property it is relatively minimal. You can change things in your home. No one can kick you out unless you are seriously delinquent and do not catch up in time.
-The mortgage does not increase. When you buy your house, if you chose a fixed rate mortgage, your mortgage payment is set at the market values when you purchased your home. This means that your debt will become less significant as inflation increases. Property taxes and Insurance which are lumped into your payment, however, can and will increase.
-You build net wealth. Yes, you can build net wealth in your home, but you will also be giving a lot of other entities a cut. There is money lost to fees of buying and selling, and of course, the interest which is front loaded into those first years. It takes a long time! The longer you hold the home the better. I would suggest not buying a home, if you do not plan 100% on owning it for the next five years, even then you are gambling on the market to have been stable or good to be able to get out without financial harm so try to plan for ten years.
-You get options. You could rent out your home and make money. In a tough spot (While generally not advised it is better than credit cards if done correctly.) you can take out equity from your home. Paid off your home? You could Seller Finance out to get a nice high predictable rate of return that is secured by a property you know better than the buyer.
-If you are not careful, it can end up a financial trap. If markets dip as they have done before home value can go down and you could end up stuck in your house for a very long time. My methods of protections are never buying a home that if rented the price fetched would not cover the mortgage, insurances, and taxes and still leave some wiggle room.
-You cannot control everything. A methadone clinic could move in close to your house. A large employer could go belly up. Your neighbor could let their house go to pot. All of these can tank the value and your ability to sell your home. Bye, bye equity.
-It can be an expensive hassle. Insurance, taxes, maintenance, repairs. These are all things you have to plan for and come out of your pocket. Unseen, non-mortgage costs can sneak up on you in a house. Doubling your electricity bill, all those tools and stuff you end up buying, that urgent repair that comes up and costs three thousand dollars.