Everyone has to have a place to live, so the question for most comes down to should we rent or should we buy? Deciding whether to rent or buy a home can be a financial decision as well as an emotional decision. Home ownership can be a very fulfilling financial and emotional aspect of life, but it has to make sense in order for it to be a sound decision. Both renting and buying have advantages and disadvantages that go along with them. It is important for you to analyze your personal situation to determine whether it is better for you to rent or whether it is better for you to buy.
Advantages of Renting
There are advantages to renting that are just not received when you own a home. When you rent, rent payments can be lower than mortgage payments. This is especially true in a high interest rate environment when obtaining mortgage financing can be very expensive. Costs associated with renting a property are usually lower than those costs associated with buying a property. For example, to rent an amount it usually requires a cash deposit and possibly the first and last months’ rent payments in upfront costs. Buying a home requires a lot more in upfront costs such as a down payment, cash for closing costs, etc.
Renting also has advantages when it comes to repairs. If something in the house or apartment that you are renting breaks it is the responsibility of the landlord to have it fixed. You, as the renter, have no financial obligation in making the repairs as longs as the problem has nothing to do with your actions and is not part of your personal property, but of the home or apartment itself.
Advantages of Buying
One of the major advantages of owning a home is that the money that you put into the monthly mortgage payments will help you to build equity in the home. This means that owning a home is a relatively safe cash investment that ideally will increase in value so that you get a return on your investment (ROI). As home values increase the value of your home can also increase, which potentially can make you money when you go to sell the home. When mortgage interest rates are low it is an advantageous time to buy because in many instances mortgage payments can be the same or even lower than rent payments during a low interest rate environment.
So when is it more advantageous to buy instead of rent? The bottom line is when it is more cost effective to own, which usually happens in a low interest rate environment. When is it more advantageous to rent? When the interest rates are high and/or you do not have enough cash for down payments and other costs associated with buying a home like closing costs.
