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Rent vs Buy: Save Money Knowing Which Is Better For You

Updated on July 16, 2013

One of the main retorts I hear from people about owning vs. renting a home is that if you rent you might as well be throwing your money away, because you are not getting anything back for it, like a mortgage earning equity would.

As with most things, there is a grain of truth to this statement, but below I will explain some advantages of renting over owning a home.

Mobility- This is one of the biggest advantages. One thing you “get” when you rent is the ability to be much more mobile than homeowners. If you are young, just out of school, job hunting, or your future is not clear for any other reason, renting is worth the ability to pick up and move at the end of your lease, or sign another lease, or modify it to go month to month.

Repairs- When you rent, someone else owns the property, which means when something breaks, it is not you that repairs or replaces anything, it is the owner or property manager. I found out years ago I am not a very “handy” person. I enjoy renting because if something needs to be repaired, I just make the call to my landlord and they do the rest. The best part, I do not pay a thing. If you rent, make sure to read your contract closely to see who is responsible for repairs. Generally speaking, the owner will want to know about it so it is handled how they prefer, especially when they are footing the bill. They may also have relationships established for certain work, so they will want a specific business or person making the repair. Either way, you are not burning weekends or evenings making repairs, or shopping for replacement appliances or materials for the DYI project.

Monthly total cost- When you rent, your costs for the home pretty much include rent and utilities associated with the home(heat, electric, water etc.). Some places will have this included in the rent, which is even better. But as a homeowner, you are on your own for everything. Taxes, mortgage, interest on the mortgage, utilities, repairs and on and on. If you were to average all of these out, for similar living spaces, a renter would generally be paying much less than a home owner.

No improvements to pay for- While renting, you do not think about taking a wall down, or remodeling the kitchen. Projects like updating a bathroom, replacing carpet, and others do not even enter your mind. You are not thinking about it because, well you don’t own the place. You may not be there more than a year or two, so why invest a ton of money and effort into it? Also, your landlord may simply not allow it, which all means, you save time and money being content in your current space as a renter. As a home owner, your mindset changes to improving your “investment”. Maybe you bought the house knowing it was a fixer upper, or that you would remodel specific rooms. Once we own something, we naturally want to make it ours. Many times, this customization goes beyond paint and pictures, which translates to a lot of time and money spent on projects.

No down payment- We all have seen the average down payment on a house being 20%. That’s $40,000 on a $200,000 home. If after a down payment your mortgage was $1,000 a month, and you rented a house for the same $1,000 a month, you could live for over 3 years on just that down payment amount! By renting, you may need to put down a deposit of a month’s rent, but that’s usually about it. Check this out: using our numbers above, even if the mortgage was only $700/month after the down payment and the renter still paid $1,000/month, it would take almost 10 years for the renter to pay as much as the home owner paid (just in mortgage payments).

Moving is easier- When renting, your moving is simply packing up, cleaning, and moving into your new place, and if you are continuing to rent, it’s a simple signing of the lease and you are set. If you own the house, there is a realtor involved, inspections, showings, maybe repairs your improvements made to help it sell.

Equity is not a sure thing- Circling back to our reason from the beginning of the article, many claim renting is a waste because you are not building equity. But equity, which is simply the difference between what you owe on your home and what it is worth in the CURRENT market, does not always increase. Look at 2008, house prices dropped by half…or more. Only now as I write this are you beginning to see some gains back on market value of your home, but for years, many people were owing much more than their house was even worth at the time.

As you can see there are many factors that contribute to determining whether renting or owning a home is better. There is no canned answer on when renting is better than owning or vice versa, but there are some aspects you want to consider about your lifestyle, future, your abilities, income, priorities, location and goals to determine which is best for you. My hope in writing this article is to prevent you from getting stuck into thinking that after a certain age, family status or career level if you do not own a home you are doing something wrong. Make sure to weigh all the options and costs that are associated with each decision so you can be informed.


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