“Should I rent or own?’ is a common question I get from my younger friends experiencing some stability in their life. Buying a property seems like one of those mile markers in life that you have to cross. But I find that people often don’t approach this the right way and are surprised by what happens.
The most common misconception that I hear is that you are better off buying than renting because you at least don’t throw your money away. I would argue that this is not exactly true. There are many additional costs that you have as a homeowner as opposed to renting. For instance, any repairs are now your responsibility. As a renter, these repairs are not your problem, as such it is easier to budget as a renter, as your costs are always fixed.
Take for example any major appliance. If anything breaks and you are a homeowner or landlord, you are suddenly on the hook for its repair or replacement. A water heater can cost between $1,000 on the low end, to as much as $3,000. Most renters wouldn’t even be able to absorb such an expense, as a homeowner you have to be prepared to absorb such an expense.
There is also the drawback of commitment, when you rent a property, it is very easy to switch properties as opposed to when you own it. If you own your property and you suddenly need to move, suddenly selling your property might not be an ideal scenario at that time. Valuations of real estate can be cyclical, and if you are caught in a down cycle while you need to move, you may actually lose money in the process of switching homes, which would not happen if you are renting.
So what are the actual advantages of home ownership? Well as I see it, the main advantage of home ownership is stability. Let’s say if you are settled in your lifestyle and choices, most importantly location, then having the stability of owning your own place can be a great benefit. When you are renting, you are essentially at the whim of your landlord every year, as they can decide at the end of your lease to not extend your lease, and now you are suddenly faced with the inconvenience and the expense of having to move. If you own your own property, no one can ever ask you to leave as long as you are paying your mortgage.
Where the savings of homeownership really come in, is over time. The longer you own your property, the more savings it can provide. So while valuations in real estate can be cyclical, over a long enough period of time, the value of real estate only goes up. The recent pandemic has exaggerated this, but as an example, my neighbor paid double for her house compared to what I paid only a couple of years prior, her mortgage payments are also significantly higher than mine. So I have “locked in” payments on my home at a value significantly lower than it is now. Over time, these savings will become even more pronounced. For a renter, increased home values go along with increased rental costs. As a renter your costs to rent will likely steadily increase.
Answering the question about whether renting or buying is better for you, has more to do with your lifestyle than the actual property. So if you are likely to stay put and have the desire to stay put. Then you will almost certainly be better off owning your own property, if you are not committed about where you are and want to retain the freedom to completely switch up your lifestyle, then renting will definitely be better for you.