With the housing crisis at a critical level and the continuing threat of a decreasing economy, the choice between renting and buying a home has become more commonplace in the mind of nearly every consumer.
However, the issue of "rent versus buy" has never been an easy one, and confusing terms like "sub-prime mortgage" and "home equity" don't make it any easier for regular people to understand this debate. Both renting and buying a home have their own associated benefits and drawbacks.
When it comes to renting, the biggest perk over buying is the fact that renters don't have to deal with all the extra costs that come with buying a home. Some of these extra costs include such things at mortgage payments, real estate agent fees and property taxes. For renters, the costs are essentially fixed for the term of their lease.
Not having to keep up the property is another benefit of renting over buying. Maintaining gardens, fixing plumbing and doing any other work that needs to be done to the house or unit will all be the landlord's (or owner's) responsibility.
At times, however, this can be a negative point for some people, given that renters can't "customize" or renovate their homes as much as buyers can. Nevertheless, if renters don't like where they live, they can simply pick up and move when the lease is over, without having worry about selling their home or getting a buyer for their place.
Renters also enjoy the luxury of not having to worry as much about the fluctuating real estate values, given that their home is not their investment. However, this can also be a major disadvantage, as rent payments don't go towards building an investment.
When rent is paid, it simply buys time for the renter to stay in his home rather than actually buying the home itself. Moreover, if the value of real estate increases, renters would be unable to savor the benefit of selling their home for profit. As a result, just as renters don't lose home equity with a fluctuating market, they also don't gain equity either as they continually pay their monthly rent.
Another downside to renting is that renters don't receive tax breaks or benefits from the residence. These will go to the landlord instead.
Pros
Cons
Although homebuyers generally have to deal with more payments and hassle than renters when acquiring a home, in the long run, buyers receive greater personal and financial benefits than renters. For example, when taking into account various tax breaks received by buyers, on the average, homeowners' mortgage payments can be less than rental payments after about three years.
Additionally, after a few more years, the buyer's payment is lower than the renter's monthly payment as the mortgage balance for the home decreases and the home equity builds. This happens even if the value of the home fluctuates.
However, when you're a buyer, if any major repair work needs to be done to your home, all work must be done and paid for by you, which adds to the costs of your home. However, given that the responsibility of the home falls more squarely on the buyer's shoulders, you also have greater freedom to remodel and renovate your home to your liking.
The potential for future investment may perhaps be the greatest advantage or disadvantage for buyers, in the sense that their home's market value is prey to the ever-fluctuating real estate market. Although many people assume that real estate is an excellent way to build investment, this isn't necessarily the case.
The U.S. housing market, like the stock market, is cyclical. So, when it comes to long-term investment, the sword cuts both ways for buyers. This issue becomes all the more chaotic, especially when buyers need to move for whatever reason, which, unlike renters, would require them to sell their home whether the housing market's in crisis or not.
Clearly, both renting and buying a home have their own unique advantages. How much you can afford to pay, as well as whether or not you plan on staying in one location for an extended period of time, will help you decide whether renting or buying a home is right for you.