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Financial Literacy

Financial Literacy

Home Finance Mortgages Buy vs. Rent

Buy vs. Rent

In the past, it was a no-brainer. You worked hard, you bought a home, and the house's value rose over time. Eventually, the house was worth a lot more than you put into it in weekend projects, mowing the lawn, and paying for that new roof.

But then a few things went wrong. Back in your grandparents' day, you had to have a steady job and be a good credit risk for banks to talk to you about mortgages. In the 1990s and 2000s, though, banks started lending to just about anyone with a pulse. (No zombies allowed.)

In 2008 and 2009, homeowners lost their jobs…and with them, their homes.

Since then, the whole rent vs. buy question has changed. Why? For one thing, no one's assuming that property prices will always go up. For another, it's suddenly harder to qualify for a mortgage.

Buying

There are some pretty big advantages to owning a home:

1. You can build up equity in your home.

2. Your home can be an investment if you use it to make money.

3. You might enjoy a better lifestyle in your own home.

4. You get more freedom in owning a home. Unless you live in one of those Stepford-wife style communities with more rules than the tax code, you can paint your house any way you want and rig out the inside like a steam punk museum…or however you roll.

5. Some of your housing costs (such as your mortgage) are tax-deductible.

But, there are some pretty big disadvantages, too:

1. You'll have less money in your pocket because of all the money you just dropped on the down payment.

2. All your house repairs are your responsibility. Have you ever tried to get a plumber over to your house on a holiday weekend? You have better odds of getting Sofia Vergara to show up at your birthday party. (Might be cheaper, too).

3. Buying a home and keeping it tickin' generally costs more than renting; and if you mess up you could lose the house.

Renting

In the other corner, they're renting. There are, of course, some big advantages to renting:

1. It costs less. Unless you want a really extravagant apartment, you can probably find one on the cheap side that will cost less than owning a home.

2. It's less of a hassle. Cleaning out the gutters? Shoveling the sidewalk after the snow storm of the century? With a rented property, the landlord is generally responsible for most major headaches.

3. It's more flexible. Want to try out living in Los Angeles and then head over to Thailand to teach English? If you rent, it's no big deal as long as you give your landlord notice or you find someone to sublet. With a mortgage hanging over your head, that can be a lot more difficult. Sure, you can rent out your house, but you are still responsible for making sure that the new owners don't decide to install an Olympic swimming pool in your living room or create a bunker in your basement.

And how about the disadvantages to renting?

1. Your money is being used to make the landlord rich. All those monthly checks you send build equity and a nice nest egg for your landlord. When you move out, you get nothing. Nada.

2. It's more likely you'll be in an apartment building, so you'll have to put up with others. Depending on your building, you may be able to hear when Sammy sneezes upstairs, or when Louis down the hall starts practicing his violin (he really needs a new hobby).

3. You don't have much say in how the apartment is set up. Don't like the carpeting in your unit? Wish that the walls were a different color? Too bad, cupcake. If you want to so much as paint a room, you're going to have to sign reams of contracts promising that you’ll get the apartment back to its original shape or risk losing your damage deposit.

Buy vs. Rent

So what's right for you?

A lot of it depends on your lifestyle. If you want to have 2.3 kids and live the American dream, a house is probably part of that. You'll have more room for the kiddies to play and you'll eventually own the house (after you’ve paid the mortgage) so that your kids can fight over it when you're gone.

On the other hand, if you want to travel around the world without a worry to your name, renting may make more sense for you. If you invest the difference between what you pay in rent versus what you would pay if you were buying a house, you'll eventually end up with a nice little fund so you can retire somewhere fabulous.

Which is the life you want?

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