Analyzing the Pros and Cons
In a real estate market where home prices continue to rise, people are beginning to reexamine the idea of buying a home, choosing instead, to rent for a while. However, there is a serious dilemma: do you keep paying rent, knowing that rent is rising too, or do you lock in your housing cost and buy a home?
Let’s Check out Both Scenarios and Look Closer at The Pros and Cons of Each: Renting
In the housing market crash in 2008, a lot of homeowners lost their homes and became renters. According to Iproperty Management, “the number of households renting their home … rose from 31.2% of households in 2006 to 36.6% in 2016”.
Some choose to rent because it is more convenient for their lifestyle. Those whose job requires frequent moves need the flexibility a 6-12 month lease agreement gives them so they can move to their next assignment!
Many renters believe renting is cheaper because they do not have to pay for maintenance and repairs. (remember landlords build this cost into your rent). Another reason many rent is they feel like they cannot afford the down payment (you DO NOT have to put down 20%) and closing costs (I have creative options to handle this) required to buy a house, due to their inability to save much after paying their monthly expenses.
That can be true! Nearly 1 in 4 renters spend at least half their income on rent. In 2017 the “severely” burdened renters’ rate was 24.7% with 24.9% reporting they were “moderately” burdened.</p.
Renting also brings some financial disadvantages. Homeowners can take advantage of tax deductions letting them claim their property taxes and mortgage interest. Additionally, there is a big risk your rent will go up every time you renew your lease, as we know the median asking rent has been increasing steadily since 1988!
One of the major challenges with renting is you don’t have a space to call your own. When you rent, you are paying your landlord’s mortgage, and therefore they are the beneficiaries of the equity gained from paying the mortgage. Let’s look at what buying would look like, whereby you get to stop paying someone else’s mortgage and building their wealth and get to start building equity and building your own wealth.
Let’s just focus on the one big difference between renting and owning, the ability to lock in your housing cost!
Assuming you will have a fixed-rate mortgage, your costs are predictable (most likely a 30-year mortgage)! You will know exactly what your mortgage payment will be for the next 15-30 years. The homeownership rate in 2018 was 64.4%, and has been on the rise.
Those home buyers locked in their housing cost rather than wait for their landlord to raise their rent again!
What are the disadvantages of owning a home? It is a long-term financial commitment for all intensive purposes! It’s not easy to just pack up and move. You will need time and good planning to do so depending on if you are going to rent out or sell the home. More and more homebuyers are retaining ownership of their previous homes (renting them out) versus selling them to enjoy the long-term equity growth for retirement.
You need to save your money! Getting a mortgage requires a down payment, closing costs, and moving expenses. Again, that requires some savings and planning!
Unless you have a homeowner’s association (HOA) (and you pay an HOA fee) or a home warranty, you will be responsible for maintenance and taking care of the home. This may range anywhere from regular landscaping to major repairs.
Like everything in life, there are pros and cons. What is better for you depends on your situation! If you think you may want to become a homeowner and want to discuss the pros and cons, contact area expert Tim Feuling (REALtor, Compass) so he can help you review your current situation!