As with most choices that we make, the decision to rent or buy a home comes down to what is most important to us. I find it helpful to create and compare lists of pros and cons. The following items to consider are in no particular order, but they are intended to get you thinking as you consider the pros and cons of renting vs. buying a home.
1. Are You Planting Roots or Just Visiting?
One con of purchasing a house depends on the location. In some places, it can take at least five to seven years just to break even on a home when considering closing costs, taxes, interest, maintenance and fluctuating home prices. Typically, if you expect you may have to move due to a job change, retirement or any “life-happens” events within a few years, financially speaking, it may make sense to rent instead of buy. Just as with most investments, time, not timing, may help reduce some of the risk.
2. Money Isn’t Everything
The pros of buying a house include the fact that it’s your house, so if you want to paint the walls purple with pink polka dots, you won’t have a landlord to tell you that you can’t. An added pro of purchasing a house is that it serves as forced savings. For those who have a hard time putting money aside into savings and retirement, building equity in an asset such as a home is not a replacement for savings, but it is better than nothing.
3. You Seek Flexibility
A pro for renting is that it can provide you some flexibility to move, especially if you have a problematic neighbor, a noisy pet next door or if you aren’t completely sure about the area you have decided to live in. However, a con of renting is that in some real estate markets it actually may ultimately be cheaper to buy a house compared to renting. The added flexibility might be costing you because the rent you are paying is helping someone else build equity in an asset at your expense. Inflation can be considered a pro or a con depending on if you are buying or renting. If buying a home, inflation may cause your home value to increase. However, if you are renting, inflation may cause your rent to increase after your initial lease is up. Even worse, after your lease ends, your landlord could decide against renewing and have you move out. Both scenarios are unpleasant and present unique financial challenges.
Before you make a major decision about buying or renting, remember “the grass is always greener on the other side of the fence.” There are pros and cons to both renting and buying so ensure when making the decision that you are weighing the benefits and risks according to your own priorities. I recommend consulting with a CFP® professional to help you evaluate the pros and cons of your decision.
Steve Repak, CFP®, Author of 6 Week Money Challenge for Your Personal Finances