A common debate is about whether to buy or rent a home. We look at the differences between renting vs buying and the one that is better for owning a home
The American dream is one of the most mentioned phrases in the United States. While the phrase is used to mean a variety of things, it is often used to refer to home ownership. In recent years, many Americans are living this dream as evidenced by the increasing number homes sold every year. According to the National Association of Realtors (NAR), more than 5.34 million existing homes were sold in 2018. More than 667k newly-built houses were built in the same year. A common question asked is whether buying a home is better than renting. In this article, we will look at renting vs buying and conclude with what we recommend.
Renting vs Buying: The Debate
One of the most contentious issues in the United States is on whether renting is better than buying a home. Indeed, searching for this keyword in Google presents more than half a billion results. The reality is that there are two sides to the topic. There are those people who strongly advice on buying and others who are strongly on the renting side. In the United States, the average price of buying a home is $230k while the average to rent a home is slightly above $1,000. According to the Census Bureau, the median mortgage cost in the US is $1100.
Renting vs Buying: Pros and Cons of Renting
For starters, renting works like this. You search for a home, get a lease, and then make monthly payments. The first benefit of renting a home is that it is affordable. As mentioned above, in the US, the average price for renting a home is $1,000. At the same time, the median salary in the US is $905 per week or $3600 per month. Therefore, if you are renting the home, you will only spend slightly over a third of your salary on rent.
The second benefit of renting a home is that it is more flexible. For example, if you live in California and you get a job in New York, you can still cancel your lease and move to a new rental apartment in New York. This is a challenge when you own your own home or if you are paying a mortgage for your home. Selling a home can be difficult when you want to move.
Third, since you don’t own the house directly, you are not responsible for paying real estate taxes. Of course, the taxes will be included in the rent that you pay but you won’t need to pay them yourself.
Finally, if there is a structural damage to the house, you will just move to another house. A good example of this is when there is a natural disaster like a hurricane.
Renting has its own disadvantages as well. These disadvantages of renting a home are:
- You don’t own the house, which means that you don’t benefit when its value rises.
- You will never get your money back.
- You don’t have any control of the rent that you pay. The homeowners can increase the rent at will.
- You will be homeless if you lose your job.
Renting vs Buying: Pros and Cons of Buying
Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. — Mark Twain
There are two popular methods of buying a home. If you have the cash, you can pay for the house in cash. If you don’t have all the cash at hand, you can take a mortgage. In the United States, there are more than 52 million mortgage accounts. The outstanding mortgage debt is more than $8.94 million. Therefore, it is clear that most Americans prefer taking a mortgage. The benefits of buying a home are:
- Peace of mind. When you own a house, you have a peace of mind knowing that you will have a place to call home when you retire or lose your job.
- An investment. The home that you own is an investment. Its value goes up as demand rises. This means that it helps to determine your net worth.
- Predictable monthly payments. If you are on a mortgage, you can predict the amount of money you will be paying every month. This is unlike when you are renting where your landlord can increase the rent at will.
- Borrow against the home. If you own a home, you can easily take a loan against the house. This is known as a home equity loan.
- Tax benefits. Many states have put in place several tax benefits with the goal of promoting home ownership in their states.
At the same time, there are some drawbacks of buying a home. First, the amount of money you need to buy a home is often very high. Very few Americans can afford buying a home in cash. Second, if you are on a mortgage and you lose your job, you will be in a big debt. This means that your house will be repossessed, which will force you to declare bankruptcy. Third, the value of your home – and net worth – could plummet if there is a financial or environmental crisis. Finally, as an illiquid asset, you might find it being difficult to sell the house when you need to.
Renting vs Buying: The Conclusion
The question on whether to buy or rent a home has been around for decades. In this article, we have looked at the key benefits and drawbacks of each of the strategies. While it has its own drawbacks, we believe that buying a home is much better. With a home that you own, you will always have a roof on your head no matter what.
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