Renting vs Owning

As a real estate agent, I believe that in most circumstances, buying makes more sense than renting, assuming you can afford it. However, no one-size fits all solution exists. So I thought it might be useful to examine the pros and cons of each. My list is by no means exhaustive, but I hope I’ve hit the major points.

Renting

Pros

1. Greater flexibility (potentially) to move: If you are considering moving and can either time a move to coincide with the end of a lease or break the lease/sublet without significant financial impact, it is easier to rent a different place than to go through the process of selling a house. (However, if there are several months left on the lease, unless you can afford to pay the rest out, you may be stuck til the end of the lease.) There are also no fees involved (other than moving your things)–no closing costs or real estate fees. If you are not sure where you want to live, renting makes sense.
2. Less expensive up front costs: When you rent, you don’t have a large downpayment, like you do when you buy. In some areas, you may have a broker fee, application/credit check fee, and you often have to pay the first couple of months’ of rent up front. Those costs are much less than a downpayment, though.
3. Tenants are not responsible for major maintenance costs: When you rent, you don’t need to worry about things like putting on a new roof, trimming trees, replacing an old boiler, etc.).

Cons

1. Renting doesn’t let you build equity: The most often cited reason for not renting is that you’re “throwing money away”. The money you pay in rent, no matter how many years you pay, is never recouped.
2. Length of your tenancy: You can’t necessarily count on being able to stay in your rental indefinitely. A landlord doesn’t have to renew your lease. He might decide to sell the property, for example.
3. Rent increases: Rents normally go up every year. So what you pay in rent this year is very likely to be appreciably less than what you’ll be paying five years down the road. While a monthly mortgage payment may go up a little bit to cover any tax increases on the property, it otherwise stays the same for the life of the mortgage, which is often 30 years. (Note: some people tout not having to pay taxes as an advantage of renting. I’d argue that the tenant does pay them as the rent amount will include enough to cover taxes.)
4. Repairs: You are dependent on the landlord to address needed repairs in a timely fashion. You also have no power to ensure they are done the way you would do them.
5. Rules and restrictions: Sometimes, there are rules like “no pets” that tenants must obey.
6. Limited personalization: You can’t put as personal a stamp on a rental property as you can’t make any changes/updates the way you could if you owned it. In some cases, a landlord might allow you to paint or put in new blinds or replace light fixtures, but, remember: once you leave that property, any value due to those improvements does not benefit you financially. It will only benefit the landlord if he can charge more to the next tenant.
7. Privacy compromises: Keep in mind that the landlord has the right to enter the property (with notice) for a handful of reasons.
8. No tax benefits: When you own your own home, there are certain tax write-offs you are entitled to.

Owning

Pros

1. Equity: As you continue to pay down the principal on your mortgage, you own more of the property. That means that when you sell, more of the purchase price goes into your pocket (vs. going to the bank to pay off the mortgage). You may also choose to use equity as collateral in a home equity loan, which can finance
2. Stability: When you own your home, you are in control of deciding if and when you move. (Of course, a change in finances or life situation which may force you to move could happen the same way if you were renting. However, due to having built equity, if you did have to sell, you’d probably be in a better financial situation as an owner than renter.)
3. Repairs: As an owner, you can decide which repairs/renovations to do when.
4. Personalization: Not only can you decorate as you wish, but you can landscape and make improvements/updated that reflect your taste, lifestyle and budget. (Note: think carefully about how to make updates that will appeal to a wide buyer pool if/when you sell in order to get a good return on your investment; overly stylized changes to a home may actually lower its value.)
5. Appreciation: Real estate usually appreciates over time, which means the value of your property increases.
6. Tax Benefits: Home owners may benefit from tax deductions on mortgage interest and property taxes. Laws surrounding these benefits change often, so be sure to check exactly what you’d be entitled to.

Cons

1. High upfront costs: Buying a home requires a significant down payment as well as closing costs and other fees which don’t go toward equity building.
2. Maintenance and repairs: When you own your home, you are responsible for all maintenance and repairs, which can be costly and time-consuming.
3. Less flexibility (potentially): The process of getting a home ready to sell, marketing it, getting through the time between contract and settlement AND finding and purchasing a new house can take several months. That said, if you decide you want to move when you are three months into a twelve-month lease, unless you can pay out the lease or sublet, you may not be able to afford to move until that lease ends. So, depending on the situation, you may have greater or less flexiblity as an owner than an renter.
4. Market Risk: While, especially over longer periods, real estate values tend to increase, it is possibly that the value of a property decreases. In that unfortunate scenario, if an owner did need to sell at a time when the value was less than what it was when it was purchased, the owner could have a loss. (Remember, though, that if a significant portion of the original loan has been paid off, the seller could still come out even or make a little money due to equity owned.)
5. Property Taxes and Insurance: As I stated earlier in this post, while home owners do need to pay taxes (and home owner’s insurance), those costs are built into the monthly rent, so, in essence, renters are paying for those just like owners are.

There are clearly advantages and disadvantages to both owning and renting. It’s vital to carefully consider both your financial situation  and the likelihood that you will want to remain in the area (or in a certain kind of dwelling) before deciding whether to rent or buy. I’d recommend comparing expected costs over a few different periods of time to help you home in on the best plan.

If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973