Have you ever heard the long tale that paying rent is an absolute waste of money? That you are paying someone else’s mortgage and will never be able to save anything? If yes, this might be a bit dramatic. If not, let us break down the million dollar question of should you rent or buy? As all great financial questions before this one, the answer is that it depends on your financial circumstances and the lifestyle you desire.
Should you rent or buy?
Pros to renting
Here are the pros of renting:
- Flexibility in your residence as you can easily move places to your lifestyle needs without having to worry about a large commitment like a mortgage.
- Renting may be cheaper compared to owning a home when adding in the extra expenses of owning a home such as maintenance fees, utilities, property taxes, and mortgage.
- Renting allows you to have less responsibility for the place of residence as the landlord is responsible for any repairs or maintenance work.
- Renting can also allow you to continue saving due to the lack of home expenses such as property taxes or maintenance fees.
Cons of renting
The rent or buy decision is only possible if we think of the pros and cons together. The cons of renting are:
- The rent you pay is not building any equity for you. The money is being used as an expense rather than an investment.
- Renting creates a detached environment from the home as the landlord has the final say in what’s done in the house. For example, you may not be able to hang items on the wall using a nail if it is forbidden in the contract.
- Rent can also increase annually depending on the landlord and if it is not rent-controlled, the increase might not make financial sense.
- Landlords have full control of the dynamic where you are not able to rush them to complete your maintenance requests.
Pros to buying
With purchasing a home, here are the pros:
- Equity! Each principal payment is an investment to your future and in a physical asset. This can be leveraged to obtain a loan.
- Control and sense of belonging. When it’s your home, you can do whatever you’d like! Style it, renovate it and take ownership of the space.
- Stability. With a mortgage, if you have fixed payments on your mortgage, you have a stable amount confirmed without any risk of increases.
- Savings. This ties into the pro of equity however with mortgage payments you are forced into saving money each month via your principal payment amount.
Cons of buying
- Maintenance costs and unexpected expenses may eat away at your disposable income.
- More ownership and control may feel overburdening as the responsibility is greater.
- High upfront costs. With buying, you need to pay for the down payment, closing costs, title insurance and more.
- Less flexibility. Unlike renting, you will not be able to pick up and move whenever due to the housing market and costs of selling/purchasing a home.
With all the pros and cons, how does one decide what’s right for them? Should you rent or buy? Understand your emotions and financial position when choosing to rent or buy.
Questions to ask when deciding rent or buy
Here’s our top 5 questions to ask yourself when deciding to rent or buy:
- Do I have the financial means to fund the upfront costs of buying a home?
- Would I be able to pay off the mortgage payments comfortably?
- Would I have the disposable income to pay for the lifestyle I desire after home expenses?
- Do I prefer flexibility in where I live?
- Am I emotionally and mentally ready for the responsibility of owning a home?
Whatever decision you make, make sure it’s right for you. The rent or buy decision is the biggest question for the current generation. Take your time!
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