The debate over which is better, renting or buying, has been raging on for decades. With the housing market constantly fluctuating, more individuals now look to renting as the lesser of two evils. Proponents of homeownership claim that renting is money down the drain, but are either one of these living situations better than the other?
There are apartments today that can rival nearly any home in both comfort and style, details here, as well as the usual benefits that make owning a home a more personal space.
The best way to settle this debate is by closely examining the overall costs and advantages associated with each option. Given that the market can change at the drop of a hat and every area is different, this article will only look at the constants the come with each decision.
The Costs of Owning
Before ever being considered the owner of a house, there are thousands of dollars in upfront costs. Upon breakdown, they look something like this:
- Earnest Money Check – 1% to 3% of the home’s value
- Down Payment – anywhere from 3.5% to 20% of the home’s value
- Appraisal fee – $300 to $500
- Inspection costs – another $300 to $500
- Property tax – at least 1 to 6 months upfront
- Homeowner’s Insurance – $300 to $1,000
- Closing costs – 2% to 4% of the purchase price
These are just the initial costs, however. Homeowners should expect to make continual payments on their mortgages, property taxes, and insurance after the home as been purchased. Utilities and maintenance are also involved, but all of these vary widely depending on location and lender.
You’ll also be looking at a number of on-time costs for the home, too. These can include furnishing, moving costs, initial repairs and any renovations that need to be made. As you can see, the initial cost of deciding to buy can be a steep venture.
The Costs of Renting
Anyone who has ever rented knows that a security deposit is initially requires, which can be up to one and half times the cost of a month’s rent. This is usually coupled with the first month’s rent paid upfront, as well as any moving cost to haul your stuff in. After that you’re looking at recurring costs such as:
- Monthly rent
- Renter’s insurance
- And the possible cost of any utilities not included
If you’re simply viewing this debate from a financial standpoint, renting is initially cheaper than owning. The same remains true even when looking at something like the luxury apartments in Mountain View, San Jose, Palo Alto or Carmel The Village.
Weighing the Benefits
A major point that critics of renting point out is that homes build equity over time as well as have the potential to increase in value. Homeowners also reap tax benefits in exemptions and deductions. From a non-financial standpoint, a home also allows for more creative freedom.
You can have outdoor copper lanterns for your front porch, lay down mulch, and redo the floors any which way you please. However, the responsibility for maintenance and repairs might put more of a strain on your finances. Despite the benefits of equity, homes may decrease in value and leave owners with no profit when sold.
Renters can relocate easily, aren’t responsible for maintenance, and never have to worry about the real estate market. They miss out on federal tax benefits and have limited control over the continued cost in their lease, though. A renter also faces a level of uncertainty about whether or not they will be able to stay in one spot indefinitely, but they can relocate much easier.
The benefits and downsides to each are something individuals have to figure out for themselves as each suit a different lifestyle. As for cost, renting wins out initially with owning having the possibility to make you money down the road despite high upfront costs. Either can be the ideal situation for you, but weighing the factors is essential to finding a happy home.