Smart Money

Renting VS Buying A Home: The Great Debate That Shouldn’t Be

Last updated on February 25, 2020 by
rent vs buy home

There’s a dangerous conception in society today that owning a home means you’re financially stable. Many people in their 30’s and 40’s have even stated that they often feel reluctant to tell people they rent in fear of being judged as poor.

However, that’s only one of the many considerations in the debate over buying vs renting a home. For generations, we’ve been taught that home ownership is the ultimate goal. Go to school, get a well-paying job, save up money, and then buy a home and raise your family in it. That’s the ultimate proof that you’ve made it in this world.

But more and more people are learning that owning a home isn’t better than renting. And at the same time, renting isn’t better than owning either. It all depends on the lifestyle and the type of financial commitment you’d prefer.

Renting: Offers flexibility and consistency in housing cost. You can move any time. You can move to a different city, or even a different country without going through the long, gruelling process of putting your home on the market.

Owning: Offers stability, a sense of pride and belonging to a community of other home owners, and a fairly stable asset.

In this post, we’ll dive through questions to consider when trying to decide whether to rent or own a home.

How long will you live in the house?

If you’re looking to settle down and raise a family, and want a house you can call your own to do that, then obviously owning is the better options. However, if you don’t plan to live in a single home for very long, then it doesn’t make sense to own a house. The costs of home ownership are spread out over time. Buying a home is generally more recommended for people who plan to live at least 7 years in the property.

How high are rent prices?

The market can also determine whether buying a home makes more economical sense than renting. If rent in your area is skyrocketing, it might be a better move to buy a home rather than overpaying on rent.

Can you affort a house? Will it make you broke?

One of the most common situations all over the world is that people buy a larger house than they can afford due to the “excellent mortgage offer” from the bank and they end up with monthly payments they struggle to make, and no money left over for savings. They’ve used all their savings on the downpayment, and are now left with a super nice house, and financially struggling.

Do you have high interest debt

It doesn’t make sense buying a house when you have large debts owing that charge a 20% interest rate. If you have high interest debt, focus on paying that off first before considering purchasing a house, which will add on to your monthly expenses and make it even more difficult to pay off that debt.

Are you buying as an investment?

Since I was a child, I’ve been told that buying a house is one of the best investments you can make. But that’s false.

Buying a house primarily as an investment vehicle can be dangerous unless you know what you’re doing. Real estate barely increases higher than inflation rates. Unless, you’re a seasoned real estate investor who knows how to spot undervalued property, developing areas, or buying and flipping houses, it’s likely not going to be as good an investment as you thought.

Do you already invest what you save?

From a yearly cost perspective, renting is cheaper than owning. But one thing you have to ask yourself is if you’re already in the habit of investing what you save. If you already invest, you can calculate the earnings of what you invest vs what you would make from what you would potentially earn from your home as an investment vehicle.

If you’re not investing what you save, and don’t have the financial discipline to do so, then buying could produce a better return for you naturally over the long run. It’s basically forced savings and forced investment.

Do you rent within your means?

Many people spend as much rent as they can. The money they would save from buying a house they instead spend on larger, fancier apartments. The renting vs buying debate only comes close if you’re smart with how much you spend on rent.

Are you able to pay for unexpected costs?

One of the biggest advantages of renting is that you don’t need to worry about repairs or maintenance fees.

If the wind blows off your roof, it’s not your responsibility to shell out tens of thousands of dollars for an emergency repair. If the pipes burst, the thousands of dollars to fix them won’t come out of your pocket.

Are you prepared for additional monthly payments?

With home ownership comes more costs associated with owning your home.

You’ll have to pay things you’ve never had to think about when you were renting such as property taxes, trash pickup, homeowner insurance, garden maintenance (if you own), snow removal, pest control, and water and sewage services.

Where else can you spend that money on?

When you buy a house, you’re putting around 20% down. Depending on where you’re buying, that can add up to over $100,000. Where else can you spend that money on? Are you trying to build a business? Could that money be used for an investment with a large return?

For younger people, putting that much money into a house locks them down from ever taking a large risk on that business they’ve been dreaming of.

On the flipside, if you don’t buy because of opportunity cost, are you actually going to invest that money? Are you really going to start that business or will it just end up sitting in a low-interest savings account until you spend it all?

Conclusion

Renting vs buying a home shouldn’t be a debate. One isn’t better than the other. It all depends on the lifestyle and financial choices you want and are willing to make.