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by Hillary Patin

Renting vs. Buying

To rent, or to buy? This is not a question to be taken lightly, since it’s likely one of the largest financial decisions you will ever make.
Waking up

Renting can leave you feeling like you’re paying your landlord’s mortgage, while home ownership comes with its own share of stressors, such as maintaining your house for future resale value.

We all have concerns that we’re doing the right thing, and spend a large percentage of our income just to have a place we can call home. To truly understand if buying or renting is the best choice for you, let’s first dispel a few common myths around renting vs. buying.

“If you rent, you’re throwing money away”

Whether you’re paying rent to your landlord or giving mortgage payments to your bank, you’re paying money to live somewhere. Even if home ownership comes with smaller monthly mortgage payments than monthly rent, there are costs that come with homeownership that don’t come with renting. Homeowners have to deal with property taxes, home maintenance and repairs, utilities, and insurance. If you’re renting, you’re not putting money into a house, but homeowners with mortgages are paying not only for the house, but are also paying the bank interest on the mortgage, which could also be seen as throwing money away.

“Buying real estate is a good investment”

Historically, you’re more likely to see better returns on the stock market than in real estate, so if your primary goal is to make money, buying a house isn’t the most efficient use of your money. However, a home you buy and live in has utility, whereas stocks do not; this is not an apples-to-apples comparison. There are many factors involved in the growth of the value of the house—price, renovations and additions, and rent growth rates in the area. As a homeowner, how much money you can make off the house also depends on factors like how long you plan to have the house before selling.

“Renting is cheaper, you don’t pay for house maintenance”

It’s true—you don’t have to pay for things like a new roof or rusted pipes if you rent rather than own. But consider this: if you’re paying a monthly mortgage payment, your payment is locked in. If you’re a renter, your rent will rise with the market value of rent in your area. Recently, rents have been rising faster than incomes, making buying a more attractive option for many. While you should do the math for your own circumstances, there’s evidence that buying a house is cheaper than renting for millennials nationwide, including costs like house maintenance.

It’s important to recognize that these blanket statements don’t apply to you. If you’re considering making what may be the largest purchase in your life, you shouldn’t do it because you feel like you’re throwing money away on rent. Likewise, you shouldn’t rationalize that you should continue renting because you don’t have to pay for house maintenance, when it’s very possible that you could find a house to buy and pay less overall in the long run than you would by renting.

Next steps

If you’re a renter considering buying, ask yourself, “Why do I want to buy?” If the answer is one of the above myths, push those to the side. Maybe you have a dog, and can’t find an affordable place to rent with a yard. Maybe you want to start a family, and want to have a stable place to live. Likewise, if you’re a homeowner considering going back to renting, ask yourself why. Maybe you’re considering moving multiple times in your near future. Maybe you don’t want to be bothered with home maintenance. The point is to remember there are lifestyle pros and cons involved when it comes to buying versus renting, so think about how much you are willing to pay for those, despite the hard math.

The hard math

To figure out whether renting or buying is best for you in terms of pure money, you need to answer these questions for your own circumstances: What area are you looking to buy? What’s the expected house price growth in that area? How long would you stay there? And many, many more. This rent vs. buy calculator covers all the bases. It even assumes that, if you rent, the money you would’ve spent on your down payment is invested in stocks or other investments. Do some research in your area to see if it’s better to rent or to buy. The best thing about this calculator is that it’s easy to see which factors have a large impact (home price, home price growth rate in a given area, investment return rate) and which factors have a minimal impact (length of mortgage, closing costs, inflation rate) on whether it’s better to rent or to buy.

If you’ve done the math, thought over the pros and cons of renting versus buying for your lifestyle, and decide that you want to own a house, know that even a single person can do it. There’s a lot of conflicting information out there, and a lot of people that may have your best interest in mind trying to help you with blanket statements. If you’ve been wrestling with whether to rent or buy, hopefully going through the above steps will give you some peace of mind.

Remember: you’ll never know what’s truly right for you until you take the time to do the math for you and your specific circumstances. Whether you rent or buy, anything that takes up that much of your income deserves some personal attention. If your lifestyle and the math show that renting is a better choice for you, don’t let blanket statements like “you’re throwing away money when you rent” and “buying a house is the adult thing to do” sway you.

Bichon frise in an apartment

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