Buying a home vs. renting one. Which one is better?
It’s a debate as old as time, like Pepsi vs Coke or boxers vs briefs. At the end of the day, the only person who can make that call is you. Both renting and buying have their own pros and cons which may sway you one way or another.
But often, while renting may seem cheaper in the short run, but in the long run it can set you back financially.
Here’s why buying can sometimes be the right choice:
Rent costs always go up
On the surface, paying a mortgage seems more expensive than paying rent. With the help of a house payment calculator, however, it’s easy to figure out exactly how much house you can afford, then find a property that meets your budget. With a fixed-rate mortgage, you know exactly how much you’re going to have to pay, how often, and for how long.
When you rent, meanwhile, there’s no such reliability. A mortgage is a legally binding contract, whereas landlords can and do often raise rent costs regularly. That means you could actually end up paying more than you can afford even though you never agreed to it. Don’t like it? Move out. That’s pretty much your only option.
Owning can be profitable
Obviously, the biggest difference between owning and renting is that once you’ve paid off your mortgage, that’s it. That property belongs to you. Sure, you put a lot of money into it, but in the end you actually got something valuable for what you spent. With renting, no matter how much you’ve paid in and no matter how long you’ve been there, the place you call home still belongs to someone else.
Not only does this make renting a waste of money, it also denies you a whole bunch of different opportunities to make new money. Any property you own is an asset that can be leveraged to generate income. Increase a house’s value through renovations, then sell it to someone else for many times the price you paid. You can rent out spare rooms to boarders and fertile plots to gardeners. You can turn a portion of your house into a business and work from home. There are so many possibilities, it will make your head spin.
No tax benefits for renters
When comparing the advantages of owning versus those of renting, it can be easy to fall into the trap of only looking at mortgage and rent payments. But both also have other costs associated with them that often go unexplored. At first glance, renting seems to have the edge here. After all, some landlords throw in certain utilities for “free.”
Never mind that “free” utilities are typically covered by an overinflated monthly rent, because even if they really were free, you’d likely still lose all the money you saved come tax time. If mortgage interest rates are a sticking point for you, consider this: most mortgage interest is tax deductible. This allows homeowners to save hundreds of dollars on taxes every month, so much so that many renters are actually losing money compared to owners.