Should you buy or rent your home?
This age old question has spurred debate among friends and families for the past couple decades. But this is a hot topic now more than ever with the average American buying their first home much later in life compared to even a decade ago. Bogged down by student loans and increasing costs of living, many people believe that they need to rent to get by. However, as we’ll discuss, the decision to buy or rent your home will hopefully be about what you want to do and not what you need to do.
For Starters, Let’s Discuss the Pros and Cons of Buying a Home
The most common argument for purchasing a home is that you’re not only investing in a place to live, but you’re also investing in an asset (that’s hopefully and in all likelihood appreciating) that you’ll be building equity in. Instead of your monthly rent going to your landlord, your monthly payments will be going towards building that equity in your home. If you’re not familiar with equity, it can be defined simply as the value of your home minus the value of all the liens on your property. Your mortgage that you pay every month is a lien on your home. When you pay the mortgage balance down, your equity in your home increases. The lower your mortgage balance, the more money in your pocket in the event of a sale. In addition, your mortgage payments are more likely to stay the same than your rent prices are. Of course, your taxes and homeowner’s insurance are likely to increase at some point but your mortgage payments should not. Another perk to purchasing your home is the stability you gain. When you own a home as opposed to renting it, you don’t have to worry as much about increasing mortgage payments or if the landlord will decide to evict you for whatever reason. There’s a solid sense of security where a homeowner can be happy with the choice they’ve made to make this their permanent residence. For families with children especially, it can provide a good opportunity to minimize the stresses of moving around. Owning is a more permanent situation than renting.
This brings us to the cons of owning a home. It’s far more difficult to move if you need or want to. Transaction costs are generally fairly high and selling a home is not the quickest process. A home you own is the prime example of an illiquid asset. But that’s just it. It’s an asset. Now, many people are unable to afford purchasing a home. With steep closing costs and loan options not always available, it can seem like there’s no hope. However, there are a copious amount of resources available to first-time homeowners. These include local and national resources specifically designed to assist homeowners with their purchase. For example, at the local level, most counties have great programs available such as down payment assistance (which in some cases will be forgivable), housing repair or construction loans, and a lot of information to help you with all of their various programs. On the national level, the FHA is a great resource to obtain a loan at anywhere from 3-5% down. However, even with all that, the costs associated with insurance, mortgage payments, potential maintenance, and taxes are sometimes too much for a prospective buyer to handle.
Now, Let’s Discuss the Pros and Cons of Renting
When we think of renters, we typically think of a younger demographic or at least a less established one in the workforce. When you look at some of the pros of renting, several come to mind. Generally speaking, the costs are lower, which typically makes it a more affordable option for a younger individual. You won’t have to worry about paying property taxes or homeowner’s insurance. Your costs are relatively stable (per lease term) and if there’s damage to the property, the landlord takes care of it. You don’t pay homeowner’s insurance or property taxes. And really, there’s less stress altogether in terms of taking care of the property. It’s not yours. You don’t have to worry about maintaining the property unless your lease requires you to do so. When you are renting, there’s a different sort of freedom you have. You may not be able to design and customize your home in certain ways, but if you feel like moving, you are far more free in that sense. You don’t have a property that has a huge chunk of your money tied up in it. You can be relatively quick to move without having to worry much about the property you are leaving behind whereas an owner can be tied down for as long as it takes him/her to sell it.
Let’s take a look at some of the cons of renting. For starters, while the costs of owning a home are higher, it is likely worth doing so financially in the long run. According to a study done in 2017 by Nerdwallet, the median Florida homeowner could expect to pay 33% more per month than the median Florida renter. This marked the lowest figure across all 50 states. For reference, in New Jersey, the median homeowner paid 93% more per month than the median New Jersey renter. Even with these increased costs, Forbes notes that the average homeowner has twice as much equity in their home than they have in savings. It’s easier to manage the investment when your monthly payments are directly contributing to your equity. Additionally, the opportunity cost of not investing in a home when you could have been building equity and value is exceptionally high. Now, an argument can be made that the savings gained from renting instead of owning a home can be reinvested and deliver a better return than owning a home. It’s certainly possible, however, houses are a very safe investment vehicle, especially when compared to the vast majority of options the market has to offer. Other cons may include a loss of freedom. This is two-fold in that you cannot usually customize or make improvements on the property and your landlord may enter the premises under certain circumstances. It’s NOT your property and you are simply paying for a space to live. Your leasehold doesn’t entitle you to a good landlord or even a stable rent price for subsequent lease terms. These things are pretty much up in the air when you rent.
In reality, one option is not markedly better than the other. It all depends on your values, where you are in life, and what you want to get out of your living situation. However, in my opinion, owning is the better option for most people, especially in suburban and rural parts of Florida. Like I said before, this is hopefully a decision for you that is about what you want, not what you need. However, whether you decide to buy or rent a home, Apex Brokerage is here to help you through it. We understand that this is one of the biggest decisions of your life and we take pride in getting you the best results, for your present and your future. At Apex Brokerage, we believe in forming strong bonds that will continue to serve you for a lifetime because we’re different. We ask, listen, and deliver.