As real estate agents, we love helping people move into homes they love. That’s our job, after all! But as much as we enjoy guiding people along the path to homeownership, we ultimately want people to love where they live.
For some people, that means taking the leap from renting to buying a home. For others, it means continuing to rent until their circumstances shift. Regardless, we believe in helping people understand the true pros and cons of buying versus renting so that they can arrive at an informed decision they feel confident in.
Buying A Houses Pros and Cons
Pros of Buying A House
Some of the major advantages of buying a house include:
1. A chance to build equity. Home equity is the amount of money that is yours in your home, based on your mortgage balance and the value of your home. In other words, equity is the amount of your home you own outright.
You can increase your equity in a variety of ways. Equity may increase when:
You make a monthly mortgage payment.
You build an addition onto the home.
Market shifts automatically increase your home’s value.
Equity matters because it is a powerful financial tool that can assist in buying a new home, increases your borrowing power, and can give you a little more financial freedom during retirement.
2. More freedom. This one is the most obvious, and it’s also arguably the most important. Without a landlord, you have the freedom to make immediate repairs, rip up the old carpet, paint the walls whatever color you’d like—anything a landlord may drag their feet on or forbid you from doing.
As the homeowner, you become the landlord. You determine when and how that roof leak gets repaired, what sort of floor the kitchen should have, and whether or not the living room can have a dimmer switch.
Enjoy designing and decorating the home of your dreams!
3. You have a set monthly cost. When you rent, you’re subjected to potential rent hikes every time you renew your lease. And while there are general protections to insulate you from predatory landlord behaviors, you’re usually stuck paying whatever the landlord says. As a result, your rent could increase year after year after year.
With a mortgage payment, however, your monthly fee is locked in for the entire duration of the mortgage. So, if you have a 30-year mortgage, your mortgage payment will remain the same for the entire 30 years—without any influence from inflation or any other factors. Plus, you’ll have the opportunity to remortgage in the future if rates decrease, and that could potentially save you even more!
And while you are ultimately responsible for insurance and major repairs (which we’ll discuss in a moment), that monthly fee is locked in.
4. Homes typically increase in value over time. Back in the mid-1980s, the average sale price for a home in the United States was around $100,000. These days? The average home sells for closer to $500,000.
This is a trend that’s been taking place for years, making a house one of the safest and most reliable investments you can make. And although you will pay additional costs for general upkeep and insurance (which makes some people feel like certain homes are “money pits”), the vast majority of homes increase in value.
Cons of Buying
Of course, there are certain drawbacks to owning a home you should be prepared for. These include:
1. You’re responsible when something goes wrong. All of the things you would have called a landlord for help with if you were renting? You’ll have to take care of it on your own now.
Did the heat stop working in the middle of the winter? You’ll have to figure it out. Did a sudden storm knock over a tree on your property? You’re on the hook for getting it removed. Did a pipe burst under your kitchen sink while you were on vacation, flooding the first floor and basement? That’s your job to fix it.
You can’t rely on your landlord for help with the property. Instead, you’ll have to either acquire the right equipment and work on your DIY skills, or you’ll need to build your own network of landscapers, plumbers, electricians, carpenters, exterminators, and other professionals to assist you.
2. The total cost of ownership can be higher than renting. When you pay rent, you’re not just paying off the landlord’s mortgage. You're paying the mortgage, insurance, taxes, fees for fixing any issues on the property, and the landlord’s profit margin.
As a result, the mortgage on your first home could very well cost less than your monthly rent, but you’ll also need to pay homeowners insurance, mortgage insurance (depending on your downpayment) property taxes, and fees for any sort of repairs you hire out. Plus, you’ll also need to cover the downpayment, closing costs, and moving expenses!
As a result, the total cost of owning a home could be more than renting every month.
3. A home is a long-term financial commitment. The beauty of renting is that you can stop renting one apartment and move into another at any time (lease permitting, of course).
With a home, though, most experts recommend staying put for at least five years after buying so you have an opportunity to build some equity.
That’s not the case when you’re renting, however. While it’s a hassle to move from place to place, especially when you have an entire house or apartment of furniture, moving from house to house is a much larger financial hurdle.
Renting Pros and Cons
For every advantage or disadvantage of buying a home, there’s an advantage or disadvantage to renting. Here’s what you should know:
Pros of Renting
1. You have more flexibility in where you live. When you rent, you move every year without having to involve a real estate agent, mortgage broker, or any other professionals. You can simply move from one lease to another.
When you own a property, however, there are many additional steps that can make moving an emotional ordeal.
2. You’re not responsible for the property. Yes, as the person living in your apartment, you have a contractual obligation to care for the property itself, but most lease agreements push major repairs onto the landlord.
So, while you’re probably responsible for ensuring dirt doesn’t build up around the apartment, you’re not responsible for repairing damage to the building.
3. There’s no downpayment or closing costs. Yes, you may be responsible for paying a hefty safety deposit, and some landlords may charge you the first and last month of rent upfront, but that’s often much less than the money required before you move into a new home.
Moving usually requires a downpayment plus closing costs. Let’s try some simple math for an example: If you move into a $200,000 home and make a 5% downpayment and pay a 5% commission to your real estate agent (note: agent commissions vary), you’re on the hook for $20,000 before you move in!
Cons of Renting
But renting isn’t perfect for everyone. The drawbacks of renting include:
1. Costs can increase every year. Your landlord ultimately decides how much you’ll pay in rent. And costs can increase significantly. Recent research shows the average rent increased more than 11% around the country last year. That’s a huge increase!
As we mentioned above, your mortgage payment tends to stay locked in, so you’ll be immune to rent hikes if you decide to buy a home.
2. Your landlord might not be great. We’ve all heard horror stories about bad landlords. Some of us have even lived through those horror stories!
But a bad landlord can make your life miserable. Failure to promptly fix the heat, resolve a leak, or replace a broken window can make your living conditions uncomfortable or even dangerous.
Beyond that, some landlords are stringent about what you can and can’t do. Some won’t allow dogs. Some won’t allow cats. And some won’t allow any pets at all. And then some are finicky about repainting the walls or even hanging artwork!
Needless to say, some landlords can really cramp your style while simultaneously making you physically uncomfortable in the place you live.
3. You’re not building equity. As we mentioned earlier, equity is a powerful, powerful force. But every time you cut a rent check, you’re not getting anything in return except the right to keep the same roof over your head next month.
Instead, you’re helping the landlord increase his or her equity, assisting them in becoming a little more financially wealthy than they were before.
Make the Right Decision for You
If you’re struggling to determine whether renting or buying is right for you, contact us at theblocks@blocksintheburgh.com. We’d be happy to assist on your journey!
Cheers,
Julie & Ted