Buyers and renters have long argued about which housing strategy is best. Buyers love building equity in their homes and the idea of owning an asset, even if that asset comes with a big heap of mortgage debt. Renters, on the other hand, love the freedom that comes with no mortgage, no responsibility (or cost) for repairs, and an option to move without selling. But which really comes out on top when it comes to the dollars and cents? A new report gives us insights into the better financial option when deciding whether to buy or rent your next home. Let’s dive in with a detailed look at when buying makes the most sense and when you might prefer to rent.
The cheapest option: buying a home
A new report from Trulia, the results found that nationwide you are better off buying if you plan to keep a home for at least six years. The July 2018 result found that buyers save 26.3% on average compared to renters. The result actually dropped from the previous period in renting’s favor due to flattening or lower rents in over 80% of the biggest real estate markets.
The savings from renting only vanish in the two most expensive housing markets, San Francisco and San Jose. In The City By the Bay, you save a narrow 5.8% from renting over six years. In Silicon Valley hub San Jose, the savings from renting came in at 12.2% on average. But in those expensive markets, many would-be buyers can’t afford the million dollar price tags Bay Area homes demand anyway. But in the low-cost cities like Detroit, you can save a whopping 48.9% over six years if you choose to buy!
Advantages of buying over renting
Buyers have some compelling reasons to pick ownership over renting. Here are some of the major benefits of buying a home instead of renting:
- Build equity – While renting, you just pay an expense each month for a place to live. When you buy, a portion of your mortgage payment goes to growing your ownership value in the home. When you move out of an apartment, you get nothing back outside of a deposit return if you are lucky. When you sell a home you own, you get to pull that equity out for a future home purchase or any other use you choose.
- Control of your home – Do you want to paint a wall red? Do you want to replace an ugly light fixture? If you rent, you might be stuck. If you own, you can do any upgrades you want. And even better, you can build the value of your home when you choose the right upgrades.
- Capture value from the market – Home prices go up and down, but the general tide takes up them over time. You just might have to wait a while if a bubble bursts for your home value to recover, as we saw in the years following the 2007-2008 housing bubble. But if you own a property and the neighborhood improves, you won’t face eviction. You’ll face a more valuable home.
Of course, there are downsides to buying a home as well. But if you plan to keep the home long enough, the dollars and cents should come out in your favor.
Renting still makes sense for many
If you live in the Bay Area, you may be financially better off renting. Elsewhere, the benefits of renting are more focused on the lifestyle freedoms and low responsibility over a property when you rent. As a renter, you don’t have to budget for repairs or maintenance. That’s all taken care of for you. Further, you are not tied down to the location for the long-run. While you can sell a house at any time, there are real estate agent fees and closing costs, and it takes some time to sell and close.
As a renter, you can just move when your lease ends or as allowed by your rental agreement. You are not tied down to anything, and the only major costs when moving are the moving expenses you would have anyway and a new deposit and first/last month rents. Closing costs for a home can easily reach into the tens of thousands of dollars, so if you plan on moving within a few years renting is the way to go!
Choose the housing option that makes the most sense for you
When it comes to buying versus renting, there is no absolute right or wrong. Like all things in personal finance, the answer is personal. Choose the housing option that makes the most sense for your unique needs. If you do, you should end up with the best long-term results.