How to decide between renting and buying

Debating whether or not to become a first-time homeowner? We can’t blame you for thinking it over: the housing market is booming right now, with more buyers than there are houses. Even if you’re ready to buy, you may be more financially comfortable as a renter than you realize. Let’s compare renting versus buying and figure out which one makes the most sense for you.

Renting

To review: Renting is leasing a property that someone else owns and paying them for its use. You sign a lease to rent an apartment, and most leases are for one year with the option to renew. 

There are tons of benefits to renting: 

• All maintenance costs are covered by the landlord or property manager. 

• Everything from landscaping, plumbing, painting, exterminators, and infrastructure upkeep is covered by the property owner, including property taxes - while you just get to live your life in the property. 

• There are no expensive closing costs as with buying a home. 

• You have the freedom to leave at the end of your lease and try out a new place; there is no 30-year fixed rate mortgage keeping you in place. You don’t have to mess with a mortgage lender, apply for a home loan, or worry about mortgage interest. 

• You make your monthly rent payment and that is your only responsibility!

That’s a pretty sweet deal: No wonder 34% of millennials say they would rather rent than buy.  This is not to say that there aren’t also some downsides to renting:

• If you were hoping to style your room your favorite shades of purple then you’re going to want to check your lease and find out what your options are, you may be stuck with eggshell walls if you lease says you can’t paint or hang pictures with nails

• There are no mortgages or loan interest, but you might have upfront costs such as broker fees, security deposits, renters insurance, amenity fees, first and last month’s rent. 

• Your landlord can raise your rent at the end of your lease term, which may force you to move more often than you like.

Homebuying

Homebuying is the act of purchasing a property and becoming a homeowner. It can take five or more years to recuperate the investment on a home purchase, so this is a decision which must be carefully considered. 

While you might be paying your mortgage for a while, there are tons of positive aspects to buying a house:

• You build equity. Buying property is one of the best investments you can make and like stocks--depending on the housing market, the longer you sit on your home the more value it could accumulate. 

• Every mortgage payment you make gets you one step closer to owning your own home, unlike a rent payment. 

• If you ever sell the house you’ll have a sizable nest egg for your next home. 

• Want to knock down a wall? Paint a room purple? No one will stop you and there is no prerogative to change it back to its original permutation to protect your security deposit. 

• There are tax benefits- which could lower your tax liability and even give you the freedom to write off home improvements. 

There are also cons to homeownership. The most obvious being affordability. 

• There are costly down payments, closing costs, private mortgage insurance (if you put less than 10% down, depending on your state), homeowners insurance, landscaping, maintenance, mortgage interest, real estate agent commission, contractors, new appliances… it’s endless! 

• Depending on your financial situation and credit score, it may be difficult to get a mortgage in the first place. 

• Any maintenance that must be done to the property falls on you as the homeowner. There is no landlord whose responsibility it is to unclog the toilet or mow the lawn, other than you.

• You might have to seek the approval of a Homeowners association or HOA to make changes to your home. 

• While you are building equity, it is not always a sure fire investment that your home’s value will increase. It could decrease over time.

Five things to consider when deciding

Okay, okay… this is a lot to chew on, but chances are you already know a lot more about what you want than you think. The trick to deciding when it’s time to rent and when it’s time to buy is to reflect on your lifestyle, and to make informed choices that are logical, and will make you happy. Take a moment to reflect inward on your needs.

1. What is the length of time you plan to stay in your potential new home?

Are you doing a short term internship in a new city for the summer? It seems like a rental is more your speed. Do you intend on staying where you are for more than five years? Home ownership might be for you. If you have an interest in packing up your life and moving to Europe on a whim or applying for jobs in other states--renting gives you the freedom to leave without too much hassle. 

2. Expenses

Buying a home involves a ton of upfront costs. If you are unable to make a significant down payment of at least twenty percent, you may be saddled with private mortgage insurance PMI on top of monthly mortgage payments. So, if the cost of your home is five hundred grand, this means you must put down one hundred grand in order to avoid additional PMI payments. If you are unable to afford dropping tens or hundreds of thousands of dollars on a lump sum down payment, it may make more financial sense to continue renting. 

3. What is your financial situation?

Depending on your salary, credit score, or personal finances saved in the bank, it may be worth googling a rent vs. buy calculator to see which option makes the most financial sense. It can help you figure out what purchase price is in your budget. Down payments, mortgage interest, closing costs, realtor fees, maintenance expenses, and homeowners insurance can be big upfront and monthly expenditures if buying. Yet broker fees, security deposits, and last month’s rent are nothing to sneeze at either.  Rent vs. buy calculators can help assess your personal finances to see which situation makes the most sense long term to meet your financial goals.

4. What’s better for your lifestyle? 

Have you and your family embraced being digital nomads, do you change jobs often, or have some other need to relocate regularly? Or maybe you want a no-fuss stable living situation? Renting provides the freedom to move, especially if you can find a month-to-month lease, and the ability to call someone whenever something needs fixing. If your lifestyle is more tied to one place, home buying may give you access to a particular location at a fixed price, even as housing and renting costs rise, and the ability to tailor your home exactly to your standards.

5. There are always risks

Risks come with both renting and buying. For a renter, the monthly cost of rent could skyrocket unexpectedly. For a homeowner, if a pipe bursts it’s your responsibility to fix it or call a plumber and all of the maintenance costs fall on you. While homeownership takes on the added responsibility of mowing lawns, cleaning vents, and testing carbon monoxide detectors (are you even handy at all?) renting gives you less control over your immediate space. 

In the end, you will have to be the one to decide which is best for you. Are you looking for a long-term commitment, or do you need housing right away? While renting and buying can have similar monthly costs, it’ll eventually come down to a matter of preference and in some cases your financial situation.

The decision to rent or buy a home is a big one, but Rhino is here to help. You don’t have to sacrifice space or the lifestyle you want, especially if you’re ready to grow your family. If you’re eying a single-family home, but you’re not ready to buy a house, you can use Rhino as security deposit insurance to lower the upfront cost.

KT Heins-Nagamoto

KT Heins-Nagamoto is a senior brand writer at Rhino. They advocate for security deposit alternatives and renter rights in everything they write.