Is It Better to Buy or Rent?
Whether renting is better than buying it depends on many factors, particularly how fast prices and rents rise and how long you stay in your home.
If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is the right direction for you. Since owning a home is the "American Dream", many people simply assume that it's always to their advantage to buy a home, and for most, it is.
Buying a home is one of the biggest investments that you will ever make. If you have excellent credit, a stable job, and plenty of cash in the bank, then buying a home may be a wise financial decision for you.
Renting is better only if your rent is very low, or if you plan on moving in a few years.
For most people buying a home will result in their largest monthly bill (by far), and because they believe that it will bring them wealth or that they are “throwing away their money” if they rent, they often take on a much larger home debt than a prudent budget would allow. It is a real shame when people are driven to get into the housing market because of misplaced notions of imagined financial benefits. Of course, everyone’s circumstances are different, and for some (particularly those that live away from the coasts) the numbers may actually work out in favor of buying.
Renting
Advantages
• More fixed costs for the term of the lease
• Not gaining equity, but not losing it either
• When the lease is up, you can just move
• There is generally less work in maintaining a home or apartment
• Smaller amount of "up-front" cash
Disadvantages
• No matter what happens with the value of the home, you will never gain equity
• Limited--
• No tax advantage to renting. Your landlord gets any and all tax breaks that are available
Buying
Disadvantages
• Variable costs
• Equity may go up, down, or stay stagnant
• If you want to move, home generally must be sold
• Work needs to be done by you--or paid for by you
• Generally a larger initial investment--the down payment
Advantages
• Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase
• The ability to remodel and redecorate the home to match your needs and desires
There can be tax advantages attached to home ownership. Consult competent legal and/or accounting advice for details for your situation
Let's summarize. From a purely financial standpoint, whether you should rent or buy comes down to your monthly budget and the cost of borrowing. If you have the down payment and interest rates are 5% or lower, it makes very little difference whether you rent or buy. At interest rates above 8%, buying will cost you 20% or more than renting.
Which one do you think is the better financial decision? Do you think that there are cases when renting is a better decision than home ownership?
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