Renting Versus Buying A Home

Renters are often in a quandary as to whether it makes sense to continue renting or buy a home. Buying a home makes more sense, particularly when taking a long-term view. Yes, even in the current hot real estate market.

Are there any advantages to renting a home? This depends on your current financial situation and what it allows for. The last thing you want to do is purchase a home with not being able to pay the mortgage on it. Let’s take a look at the possible advantages verses disadvantages when it comes to renting.

Renting – Advantages

Renting can have a few advantages depending on the part of the country you live in. The primary advantage is your monthly rent payment may be less than an equivalent mortgage, which could make it seem like you’re saving money. Also, if the landlord is kind enough to pay some of the utilities, it one thing less that you have to worry about.

A secondary advantage is that maintenance and improvements to the property are the responsibility of the landlord. Still, these advantages pale in comparison to the disadvantages of renting.

Renting – Disadvantages

The disadvantages of renting are significant and are quite obvious. If you have any opportunity to purchase a home or condominium, it almost always makes sense to do so.

The biggest disadvantage of renting is the loss of value. Assume you rent a residence for $1,000 a month and you live in the residence for two years. You will have paid a total of $24,000 in rent, a pure expenditure. The $24,000 is simply gone and you will have nothing to show for it other than the time you spent in the home. Compare this to what your landlord has gained. You have not gained any assets or “worked towards” anything in terms of ownership of a property.

Rent payments are closely aligned with a landlord’s mortgage payment. Using the above example, let’s assume your $1,000 rent exactly equals the mortgage payment. For two years, you have indirectly paid the landlord’s mortgage, helping them build equity in the house by paying down the loan. In addition, the landlord has benefited from the appreciation of the property.

By appreciation, it simply means the amount of increase in the value of the house. If the rental appreciated $20,000 in two years, the landlord has received a windfall. They may have seen a gain of $24,000 in appreciation and payments lowering the mortgage. As a renter, you have made this all possible.

Now, what would have happened if you had purchased a similar home with similar financial figures? You would have seen an increase in your wealth of $24,000, not the landlord’s wealth. If you renting, these figures should make your teeth grind.

If you are renting, you should be out shopping for your own property if finances allow for it. If not, it’s always a good idea to start saving. It may seem like an impossible dream to afford a home of your own, but do your research to see if alternative methods in the form of a down payment may work for you. Buying a house is a great way to obtain an asset and make your money count.