Owning Versus Renting a Home

Owning versus renting is both a financial decision and an individual one. Arguably, renting provides more flexibility and freedom, the freedom to move when one wishes (depending upon lease terms of course) and where one wishes. As a renter, one has little or no real responsibility for repairs, maintenance, and other costly and time-consuming aspects that home ownership can bring. Ownership offers it’s own advantages, including tax benefits and growth of equity.

A renter has little control over the property. While home ownership has its costs, it has its advantages as well. Owning a home provides the opportunity to gain equity in the property, which historically has contributed the largest portion of a families net worth. Consider that as a renter, one is essentially paying the landlord’s mortgage without the benefit of increased equity. Costs of ownership are potentially countered by tax benefits, depending on an individuals financial situation. While home ownership typically requires a large initial investment, significant responsibilities, and ongoing maintenance costs, for some people it can provide a feeling of stability and can help to strengthen one’s credit profile.

In a rational market, mortgage interest plus property taxes plus maintenance costs will roughly equal rent. However, with the impact to housing markets over the past few years, many experts cite that housing has dropped so much that the debate of owning versus renting is currently leaning toward home ownership. When housing prices are suppressed and interest rates low, it bears mentioning that while rents can typically increase year after year, the mortgage costs of a fixed-rate mortgage will remain unchanged over the term of the loan. The financial considerations are simply an analysis of the related cost of owning versus renting. One of the considerations that needs to be factored into the decision is the value of alternate investments that a renter may be able to put any excess funds into. If money spent on maintenance and paying down equity is invested wisely, can an alternative equity be created, and if so is it greater than the equity gained via the real estate market and home ownership?

To determine a preferred scenario, one should evaluate the local rental market to establish current rental rates, and also compile the estimates to consider the complete cost of ownership. Far too often, people neglect to include all the cost associated with a house and just focus on the mortgage. Remember that ownership costs can be any expenditure associated with possession and maintenance of the property.

Once the data is in hand, it is more likely that an informed decision can take place. Remember the financial and emotional magnitude of the decision to rent or own is a highly personal one. It is important to analyze the costs and financial benefits of both renting and owning to determine which is best for one’s own situation. The emotional benefits of either, be it the flexibility of renting or the stability of owning also need to be weighed, and in fact, may be the more critical factor for many.

If you have questions about how to best determine whether owning or renting is best for your individual situation, contact us. We’ll be happy to sit down with you and go over the pros and cons of both to see which scenario would work best for you.