A hotly debated topic, the question “should you rent or buy a home” truly has no clear answer and that answer ultimately depends on the individual(s) circumstances. So in this post let’s go over the common arguments and factors to consider when determining to rent versus buy and I will share my experience and thought process along the way.

Why Home Ownership Makes Sense

Your Home is an Investment

This is probably the most common argument in favor of owning a home instead of renting so let’s take a closer look at this point.

It is true that your home is a form of an investment, ideally your home will increase in value from the price you purchased it. For example (a very simple example), you purchase a home at $200,000 and 10 years later your home is now worth $250,000, you’ll have gained $50,000 in equity in addition to paying down your mortgage and working towards owning your home.

Keep in mind there is no guarantee that your home will appreciate in value, it is possible (though unlikely) that your home will decrease in value and be worth less than what you paid for it. In our scenario above picture the reverse, you purchased the home for $250,000 and ten years later your home decreased in value to $200,000, that would not be ideal and you would not be having a good time. Now you might be asking what can cause the value to decrease? Well those factors will most likely be out of your control, typically a recession or downward trend in the economy, think widespread layoffs and steep declines in the stock market can lead to home values decreasing. There are also reasons more specific to your town or neighborhood, if crime in your area rises, local businesses relocate or close leaving behind abandoned stores or the quality of schools decrease, all these factors can contribute to the value of your home dropping.

With that being said, it is more likely than not your home will increase in value over the long run, but how much is truly anyone’s guess. Even the experts who conduct studies publish different results, if you search the answer to this question you will get answers ranging anywhere from 2% - 7% a year on average but again, investment returns are never fully guaranteed.

When renting a home or apartment you are not building equity and you are not working towards owning that home or property, for that reason, conventional wisdom views renting as basically throwing money away because at the end of the lease term you have nothing to show or own for your payments.

Predictable Payments

Assuming you decide to finance your home with a long-term fixed rate mortgage, you will know exactly how much your payment of principle and interest will be each month for the next 30 years (assuming you finance with a 30 year long mortgage), you might come across the acronym PITI, which stands for Principle, the original amount of money borrowed, Interest, the additional cost of borrowing the money and how the bank makes money by lending to you, Taxes, your property taxes and Insurance, your home ownership policy. Usually all of these costs are rolled into one monthly payment known as your mortgage payment.

These costs typically do not change, especially the principle and interest payments, but property taxes can and will most likely change throughout the life of your mortgage, your insurance will most likely stay consistent. Overall you can expect a predictable monthly payment throughout the 30 year loan and that offers peace of mind to many people, as opposed to renting which can be very difficult to predict what your monthly payment will be in 3,5 or 10 years. Landlords tend to gradually raise rent over time, making it difficult to know what your monthly payment will be in the next few years, your rent might rise from $1,200 a month to $1,500 a month over the next few years, it might only rise to $1,350 a month, you just don’t know and that inability to predict leaves some people reluctant towards renting.

More Control

When owning a home you will have much more autonomy over renovations and upgrades to your living space compared to renting. Tired of the color in your bathroom? Change it, feel like the kitchen is too small? Knock down a wall and open it up, want to rip the carpet out of your master bedroom and replace it with a hardwood floor? Go for it. When renting, you won’t have the freedom to make these renovations at your discretion, you’ll need consent/approval from the landlord as the property belongs to them.

It’s not just renovations either, when renting, the landlord can opt not to renew your lease leaving you to figure out your next living situation. Say your kids are in school and your landlord decides not to renew your lease, that can create a big headache. What if you and your significant other or family decide you want a dog but the landlord has a strict no pet policy? These are just some examples to keep in mind when opting to rent, you will have some restrictions that can be avoided when owning a home.

Sense of Pride

While the reasons above are centered around numbers and logic, the psychological and emotional factors of owning a home can’t be ignored. To most people owning their home offers a sense of pride and achievement and gives them a psychological boost of confidence.

Why Renting Makes Sense

Relocation Flexibility

If you are in the stage of your life where you are constantly on the move then renting might be the better option for you. Say you travel frequently for work and your job is constantly relocating you to different offices, renting might make sense as you’ll have more flexibility and less commitment compared to buying a home. When buying a home you are essentially creating roots, planting your flag down in the location you purchased the home, as mentioned above, it can take a few years for you home to grow in value and the process of selling your home will not be a quick and easy process. Renting offers a more temporary and short term alternative for those who are not quite ready to settle down in a specific location yet, perhaps you are young and want to explore and try out a few different cities before ultimately deciding where you want to call home.

Less Maintenance & Responsibility

This factor is often overlooked when deciding to rent or buy your home. As a home owner, renovations and maintenance fall on your shoulders. Washing machine is leaking water? That’s your responsibility to fix, kitchen sink won’t drain properly? Your problem, heat won’t turn on in the winter? That’s on you. When renting, renovations and repairs are the landlord’s responsibility, leaving you with less worry and stress in the event something breaks. This is not a knock on home ownership, in fact some people enjoy DIY projects and the challenge of fixing things that break, just be mentally aware and prepared that when opting to purchase a home, the responsibility to repair and maintain it is all yours!

Avoid a Depreciating Asset

Remember I mentioned that when owning a home, it is very likely it’s value will increase over time? Keep in mind that can’t be considered a guarantee and I mentioned factors that might negatively impact the value of your home, the fear of home prices decreasing is one reason you might opt to rent instead of buying. Now I’m not suggesting that it’s smart, or even possible to time the housing market but when the stock market is down, companies are laying workers off and there are signs of an economic downturn, you may want to consider if buying still makes sense to you, or if you should rent until the economy stabilizes. Not saying one is right or wrong, just something to consider.

On top of decreasing home prices, one other factor to be considered is that your home is an illiquid asset, meaning it is not very easy to sell and can not be sold quickly. Stocks for example, are considered liquid investments, you can buy and sell Apple stock within a few minutes and clicks of a button. Your home, not so much, selling your home can be a long process with many hoops to jump through before you actually cash out so keep that in mind as well.

No Down Payment

When buying a home, the bank will require you put anywhere between 3%-20% of the purchase price down on the home, so let’s say you found your dream house for $300,000, the bank will expect you to put down anywhere between $9,000(3%) or $60,000(20%) in cash, most people don’t have this much money freely at their disposal, but most people also need a place to stay and that is where renting can serve as a bridge until you have enough money saved to be able to afford a down payment. The trick is to make sure a majority of your monthly income is not going towards your rent, in other words, make sure your rent isn’t so high to the point where you can’t save and set money aside for your future down payment!

My Experience

So now that we’ve covered the pros and cons of both renting and buying and discussed some of the factors to consider, I figured it’s only right to share my personal experience and thought process.

After graduating college Jess and I decided to move back home with our parents for a few years and save a few paychecks before deciding on our next move. Once we felt we had a little financial security and were ready to move out, we were faced with the classic rent or buy question. After changing our minds several times we decided to rent an apartment in New Jersey just outside of NYC.

This was towards the end of the COVID pandemic and the restrictions and lock downs were being lifted and Jess was in a hybrid role commuting into the city. We needed to be within a reasonable commute to her office but also were pretty confident that the NYC metro area is not where we wanted to create roots in the form of buying a home, we’re still young and wanted to explore other cities and weren’t quite ready to settle somewhere long-term and renting offered us that relocation flexibility mentioned above.

In addition to the flexibility, we didn’t feel we had enough saved to comfortably afford a down payment on a home, especially when you consider the real estate prices in the NYC metro area, we wanted to save for a little longer and continue to strengthen our financial safety net before buying a home.

Knowing that if we bought a home we would be responsible for the repairs and maintenance was a deterrent, we just weren’t mentally, emotionally or financially ready to bear that level of responsibility. For example, one night while living in the apartment I went to use the bathroom at night, flushed the toilet, crawled back into bed and heard the sound of rushing water. Sure enough, our toilet was gushing water and our bathroom was flooded, had we owned a home and this happened there was no one to call, no maintenance man to come help. One week during the summer our AC wasn’t working and a quick call to the maintenance staff had this problem resolved.

Now of course there were some downsides for renting, all the money we spent on rent each month was going into the landlord’s pocket instead of building equity and working towards owning the property and at the end of the lease term our landlord raised our rent more than we expected, but like anything in life renting our apartment had its pros and cons!

So the next time someone tells you that one option is “wrong” be sure to think for yourself and determine which option is best for you!