At one point in our lives, we have all heard the phrase “renting is throwing money down the drain” or “buying a home comes with too many expenses” it seems that neither option is better than the other from a greater perspective. When you dive into details on specific individuals and analyze their circumstances one option will always outperform the other.
Renting a Home
Renting a home comes down to flexibility at the end of the day. You can move away without worrying about selling your home. It allows you to prioritize what's important to you such as work by simply finding a spot that is close to your work. In addition, renting a home can bring ease of mind to a person by not worrying about regular maintenance and expenses. Especially larger expenses which can appear anytime and cost thousands of dollars. All these factors allow you to not be connected to your home, have no worries about repairs or maintenance, and have a lower monthly payment in most cases compared to buying a home.
Buying a Home
When buying a home you need a downpayment (a small portion of the price of the home) and a stable monthly income. This allows you to own an asset that goes up in value over time, this is what everyone gets stuck on. Even if it is an asset at the end of the day you should not put all your money into a house just because it does not depreciate. This is because if the value of your home increases it is likely the value of the housing market as a whole increases as well. Owning a home gives you the right to make it however you desire and even make money off it, which is most commonly referred to as “house hacking”. The process of renting out rooms of your house and offsetting the cost which allows for you to live at little to no expense. Not only can you rent out rooms of your house you can take advantage of a potential tax deduction if you own a home.
What's Right For You?
Although there is no one right option it is generally safe to say if you plan on living at your home for under 3 years, prefer flexibility, or cannot afford a down payment renting is the better option. This is because if you buy a home and sell it within 3 years there is a higher chance the market has not gone up enough to cover all the fees associated with buying a home. In addition, if you plan to live at your home for under 3 years the shorter time horizon can have a higher probability of the price of your home not going up much or even going down compared to living in a home for a decade, it is almost guaranteed the price will go up. On the other hand, if you are looking to settle down, can afford a down payment, and other unexpected repairs/maintenance costs, buying a home may be the better option. However, to take a deeper dive the New York Times has created a calculator to find which option is the best for you which will take many factors into account such as mortgage rate, appreciation, expected repairs/maintenance, opportunity cost, and much more to ensure you get the best deal possible for your situation.
Written by Tejpal Gill