Renting versus buying a house – the debate is never ending!
Whether it’s renting or buying your first home, the decision is undoubtedly important. It not only affects your savings and your lifestyle, but it also affects the amount of money left at the end of every month.
Every day, people rent all the time for the minimal responsibility and flexibility it offers, despite the fact that they’d amass a bigger net worth over time if they owned a home.
Similarly, people buy homes when financially they’d be better off renting, because they see homeownership as an investment and because they’d have a place to put down roots.
So, should you rent or should you buy your first home? To help you make a decision, let’s look at the pros and cons of both options.
The Advantages of Buying a House:
1. Your home will build equity.
Building equity is one of the primary financial benefits of homeownership. When you make mortgage payments at the end of each month, you build equity in a place of your own (unlike a rent payment).
Basically, the difference between your outstanding balance and the value of your home is the equity.
You may then be able to use the equity to fund an investment.
2. The value of your home can increase.
Home appreciation is another way homeowners build wealth. While not guaranteed, home prices generally rise with time.
3. Homeownership will give you stability and freedom.
Homeownership provides stability for families and children – a sense of dignity and pride and improved security and safety.
Also, as a homeowner, you have the freedom to do what you please.
Examples of such freedoms include:
• The freedom to go green
You’ll have more control over your energy footprint.
• The freedom to make Do-It-Yourself (DIY) projects
When you own your home, you can make that paver patio you’ve been dreaming of, swap out that kitchen hardware, replace vinyl flooring and customize light fixtures.
• You have the freedom to adopt furry friends
Very few places accept pets and even those that do, you’ll need to pay extra deposit or fees. With homeownership, there are no restrictions.
• You can express yourself the way you want
Landlords have strict requirements of what can and can’t be done in their apartments.
The Disadvantages of Buying a House:
1. Ownership costs more than just mortgage payments and deposit.
Buying a home can be expensive, but what newbie homeowners don’t often realize is that spending has only just begun.
You have to account for repairs, maintenance, homeowner’s insurance, and property taxes. Not to mention things like water, insurance costs, and depreciation.
2. There are opportunity costs.
This is the cost of having your money tied up in the property. If you buy a home, you lose the opportunity cost of having a very liquid $50,000 in your bank account. This might be for your own business, for entertainment, study, or for travel.
3. You’ll be paying interest.
The interest and fees you pay over the life of a loan can be significant. If your fixed rate period expires or has a variable interest rate, be prepared for the interest rates to fluctuate during the loan term.
The Advantages of Renting a House:
1. Allows you to diversify your investments.
Diversifying your investments helps you spread the risk. Renting allows you to use your savings across a broad range of investments. However, when you buy a home, all your savings are tied up in a single investment.
2. It gives you more flexibility.
The ultimate benefit of renting may arise from the flexibility of leaving for any reason. Even if you’ve signed a full year lease and decide you want to move out sooner, your options, unlike those involved with homeownership, are less complicated.
3. Frees up your savings.
After you’ve paid rent, you may be left with some money which you can use to invest elsewhere.
The Disadvantages of Renting a House:
1. The lease may not be renewed.
There is no guarantee that a lease will be renewed when it expires. The landlord may decide, for whatever reason, not to renew your lease.
2. Rent may fluctuate.
When renting a property, you’ll have no control over annual rental fluctuations. The fluctuations may be affected by things like inflation and increased property expenses.
3. You cannot make changes as you wish.
To make changes to the rental unit, you’ll need the consent of the homeowner. In addition to this, the owner reserves the right to approve or disapprove such changes.
4. You are bound by the rules of the lease agreement.
The rules can impact the freedom to use or renovate the property.
Clearly, the issue of renting or buying isn’t a simple one. You need to consider many things. For example, the appetite for risk, investment goals, family needs, lifestyle and financial resources.