Own vs. Rent

Even though most people say it’s better to own a home, it’s not the best choice for everyone.  Financially speaking, owners usually come out ahead.  However, it’s important to consider all of the differences.  Here are some comparisons to help.

Mobility – If you move frequently, renting may be better.

• Own: It’s not easy to move since you have to sell the house.  You may owe a capital gain tax on the sale unless you qualify for an exemption.  The biggest qualification is that you must own and live in your main home for at least two years out of the last five years.  If you qualify, you may be able to exclude a gain up to $250,000 ($500,000 if married filing joint).
• Rent: As soon as your lease is up, you are free to move.  Your only costs are the moving expenses and the deposit at your new place.

Up-front cost – You don’t need as much available money to rent.

• Own: You should have a 20% down payment to avoid PMI (private mortgage insurance).  You will likely need to buy appliances.  I had to buy a refrigerator, washing machine, dryer, and lawn mower.  Around here, houses usually include the dishwasher, range (oven/stove), and built-in microwave.
• Rent: You will likely have a deposit, and you probably have to pay the first (and maybe last) month up front.

Long-term cost – It’s normally better, long-term, to own.

• Own:  You likely have to pay mortgage interest, property taxes, and insurance.  I suggest getting a fixed-rate mortgage.  Occasionally pay attention to the market to see if you should refinance.  I saved about $50,000 in interest when I refinanced.  Local property taxes have been increasing as homes are over-valued, but a properly-run local government shouldn’t rely as heavily on residential property taxes.  You might be able to deduct the interest and taxes on your income tax return.  Homeowner’s, flood, and windstorm insurance are generally more expensive than renter’s insurance.  You normally build equity by owning.  If you later need to sell or borrow against your house, you can.  At the end of your renter’s lease, you own nothing.
• Rent: Around here, rents have skyrocketed.  Expect a rate increase every time you renew your lease.  My mortgage and property taxes are cheaper than most local rent (especially considering square footage).  When my house is paid off in eight years, my house will cost practically nothing compared to rent.  For example, if my property taxes & insurance increase to $9,000 per year by then, that’s only $750 per month that I need to save.  Finding an apartment for that little is almost impossible right now.  Imagine how much rent will be in eight years!

Comfort – Owning a home usually provides more privacy and less inappropriate noise.

• Own: Your neighbors are usually several feet away.  When you’re both inside, you generally don’t hear each other.  Also, if the neighbor’s house catches on fire, it likely won’t catch yours on fire.  Have you seen stories about apartment fires that spread to multiple units?  I’ve seen too many of those stories.
• Rent:  In a previous apartment, I could hear people walking (stomping) around upstairs.  I also heard neighbors in their restroom and bedroom.  No thanks!

Freedom – You normally have more decorative freedom when you own.

• Own: Your outside freedom may be limited if you have an HOA (homeowner’s association).  However, you have full freedom on the inside.  Do you want to paint your walls, change the flooring, or attach a bunch of stuff to the walls?  Go for it!  I didn’t need to paint my house, but I did change the hideous ceiling fans.  I also tiled the bathrooms since they had carpet.
• Rent:  You normally can’t paint.  If you have too many unfilled nail holes, you might lose your deposit.

Something goes wrong – It’s easier to rent if you live paycheck-to-paycheck (which I’m trying to help you avoid).

• Own: You need to have money available for unexpected expenses.  You have to research and spend money and/or time to fix something.  Sure, I just spent $5,800 on a new A/C, but it will probably last 16 years (like my last one).  That averages out to $362.50 per year.
• Rent:  You should still have money available for unexpected expenses!  If certain things go wrong, you usually just call the office, and they fix them with no extra money from your pocket.  Of course, they’re not responsible for everything that goes wrong.

Are you saving for a down payment on a house?  If you already own a home, are you saving for other goals?

Linda 🙂