Buy vs rent a home

We all want to be homeowners, but that doesn’t mean that it is the best option.

I have heard many people telling me that renting a home is waste of money.

Is it really like that?

So I have decided to do some research about this topic.

Always before any decision is made, we must take a look at the advantages and disadvantages of either buying or renting a home.

Then decide whichever is best for us and the our current situation.

Hope that helps.

At the end of the article you will find some important to help you into your decision

Advantages of Renting

1.Maintenance and Repairs

When it comes about home maintenance or repair costs which is very costly by the way.

There is no need for you to call a repair person.

You just have to call your landlord

2. Moving

When you rent, moving to another location either for a job or to be close to family is easier .

For young professionals it is usually the best option until their professional lives stabilize.

It may require you to break your rental lease, you can partially or fully offset the cost of doing so by negotiating with your landlord.

Selling a home takes time and effort.

If you need to sell your house quickly, you may be forced to accept a lower price and potentially take a loss on your investment.

3. No Exposure to Real Estate Market

Home values fluctuate in response to changing economic conditions, and can decline over time.

If you’re a renter, that’s not your problem – it’s your landlord’s.

4. Credit Requirements Generally Less Strict

Although most landlords require prospective renters to undergo a credit check, this is typically a zero-sum proposition.

Your application is either approved or denied based on your credit score and credit history.

As long as you don’t have a checkered credit report that includes bankruptcies and judgments, you’re likely to find a landlord willing to rent to you.

By contrast, mortgage lenders typically have high credit standards, with credit scores below 680 or 700 considered subprime in many cases.

Even small changes to your credit score can significantly affect your mortgage rates, potentially adding thousands of dollars in interest over your loan term.

5. Some Utilities May Be Included

Many multi-unit building owners cover the cost of most or all utilities, including non-essentials such as cable television.

The practice is less common, but definitely still possible, in smaller buildings like duplexes and single-family homes.

By contrast, homeowners have to pay full utility costs, sometimes several hundred dollars per month, depending on dwelling size and usage.

Disadvantages of Renting

1. No Equity Building

Unless you’re party to a rent-to-own agreement, every dollar you pay in rent is gone forever.

No matter how long you remain in your rental unit or how exemplary a tenant you are, you can’t build equity in the property under a standard lease agreement.

If you plan on staying in the same location for more than a few years, buying may be a smarter financial choice than renting.

2. No Federal Tax Benefits

While homeowners can deduct property taxes and mortgage interest on their federal income tax returns, renters aren’t eligible for any housing-related federal tax credits or deductions.

Depending on your property tax and mortgage interest burden, this shortcoming can raise your federal tax liability by several hundred dollars per year.

3. Limited Control Over Ongoing Housing Costs

Unless you live in a municipality with rent control laws, your landlord has the ability to raise your rent once your current lease expires.

Rental property owners raise rents to match rent increases elsewhere in the market, to compel current tenants to vacate the premises rather than sign a new lease, and for many other reasons.

If you maintain a good relationship with your landlord, you’re less likely to face onerous rent increases from year to year.

No matter what you do, though, you can’t exercise complete control over your rent.

By contrast, homeowners with fixed-rate mortgages make fixed loan payments each month, regardless of what the local real estate market does.

4. Limited Housing Security

While most jurisdictions have generous renter protection laws that prohibit landlords from evicting without cause and require adequate notice (typically 30 or 60 days) that tenants won’t be given an option to renew their leases, no law entitles you to remain in your rental unit indefinitely.

Homeowners don’t face such uncertainty.

They can remain in their homes as long as they stay current on their mortgage payments.

Advantages of Buying

1. Building Equity Over Time

Unlike renters, homeowners build equity over time.

On most mortgages, a portion of each monthly payment goes toward the loan’s interest.

The remainder pays down its principal. (Your lender’s amortization schedule shows the exact proportions, which change over time, for each month’s payment.)

Every dollar you put toward your loan’s principal represents a dollar of equity – actual ownership of the property.

Once you reach 20% equity, or 80% LTV, you can tap that equity through a home equity loan or refinance your mortgage to secure a lower interest rate or longer repayment window.

You can also boost your home’s value, and thus lower your LTV, through judicious investments in home improvement , potentially boosting its value by an amount greater than the project’s total cost.

2. Tax Benefits

Several tax benefits cater exclusively to homeowners, though not all homeowners qualify for all benefits.

These are the most notable:

Homestead Exemption. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax burden that would normally accrue.

For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000.
Federal Tax Deductions.

If you itemize your federal income taxes, you can deduct your property taxes and the interest paid on your mortgage, reducing your overall income tax burden (often substantially).

This particularly benefits those in higher tax brackets.

These benefits aren’t available to renters.

3. Potential for Rental Income

Even if you don’t initially think of your home as an investment property, you can turn it into a source of income.

This can partially or totally offset your mortgage, tax, and insurance payments on it.

The easiest way to do this is by renting out part or all of the property, provided you follow all local rental property laws.

You might rent out a basement bedroom to a friend, live in one unit of a duplex and rent out the other to strangers, or purchase and move into a second home, leaving your entire property free to rent.

You can also plunge into the sharing economy and take in short-term renters via Airbnb, VRBO, or another house-sharing platform.

4. More Creative Freedom

As a homeowner, your decorating, DIY project, and home improvement choices answer to no one, provided they don’t break local building codes or violate homeowners’ association rules.

You can paint walls, add new bathroom fixtures, update your kitchen, finish your basement, or build a patio or deck to your heart’s content.

Radically changing your living environment to suit your whims is a fun, and even cathartic aspect of homeownership – and generally, it’s not available to renters.

5. Sense of Belonging and Community

Since homeowners tend to stay in their homes for longer than renters, they’re more likely to put down roots in their communities.

This manifests in many ways. You might join a local neighborhood association, sponsor block parties or National Nights Out, volunteer at a nearby community center, join a school group, or align with a business improvement district.

As a renter, you might not do any of those things, particularly if you know you may be moving in a year or two.

Disadvantages of Buying

1. Potential for Financial Loss

Although homeownership builds equity over time, equity doesn’t equate to automatic profit.

If home values in your area decrease or remain flat during your tenure as a homeowner, dragging down the appraised value of your home, you risk a financial loss when you sell.

While renting doesn’t build equity, it also doesn’t involve the risk of owning a depreciating asset.

2. Responsibility for Maintenance and Repairs

As a homeowner, you’re responsible for covering the cost of all uninsured maintenance and repair work on your home.

Though your exact outlay is likely to vary from one year to the next, you can expect to pay about 1% of the value of your home annually toward these expenses.

If you live in a $200,000 home for 10 years, that’s $20,000 over the period, and perhaps more if you have to replace a costly, long-lived mechanical item, such as a furnace.

3. Most Homes Aren’t Sold Furnished

The New York Times recently reported on a growing trend in high-end real estate sales: fully furnished new construction homes.

While this concept is lovely, it’s far from commonplace, particularly in single-family construction.

Unless your previous residence was similarly sized and fully furnished, you need to spend time, money, and energy furnishing your newly purchased home.

By contrast, many rentals come furnished.

Even if their decorations don’t quite match your tastes, furnished spaces save resources and sanity on the front end of your tenure.

4. High Upfront Costs

Though upfront home buying costs vary greatly depending on the size of the down payment and the value of the home, you can expect to shell out no less than 5.5% of your home’s value (for an FHA loan and relatively low closing costs) before moving in.

You could spend well over 20% of the purchase price.

By contrast, most renters pay relatively low upfront costs.

And those who get back part or all of their previous apartment’s security deposit can put it toward the security deposit on their new place.

Important tools

Rent o Meter 

This is a great to find out if you are paying more for your rent in your area.

Renting vs buying calculator

User-friendly calculator to help you in your choice of whether to buy or rent your home.