Real Estate 101: Renting vs. Buying a House, Insights and Thoughts

As someone who has lived in some expensive cities (Boston, San Francisco) and changed jobs a lot, I was a renter for a good chunk of my young adult life from 20 to 40. Part of it is the commitment to save up for a 10% or 20% down-payment, part of it was being a committed single person and wanting to enjoy yourself. Either way, there will likely be a time when you reach a point in life where you need to decide whether you want to rent or jump into the real estate market and buy.

Here are some thoughts on the pros and cons of renting vs. buying that I’ve run into over the years!

Renting Pros

1. Mobility: You can usually break a lease pretty easily and move if needed for personal or professional reason.
2. Newer amenities: In many areas, renting will allow for more modern features and options in your living space.
3. Social options: Renting is usually in higher density situations so you’ll likely have neighbors and people to socialize with, date or build a community with. Not always but more options.
4. Low maintenance: Your rent pays for maintenance so if anything breaks, a fix should be a phone call away. And no need to mow that lawn, clean a pool or weed the garden!
5. Location: You can usually rent in better areas than you can buy! And for expensive cities, it may be your only reasonable option.

Renting Cons

1. Neighbors and noise: Often when you rent, you’re likely to have a neighbor above or below you in an apartment setting. Depending on who they are, it may be a problem.
2. Decorating: Since you don’t own an apartment, you’re limited in the type of improvements you can make and decorating you can do. At the least, you will have to return the space to its original condition or get charged for it.
3. Pets: Oftentimes there are breed limitations or size limitations and/or a pet fee. If you’ve got a furry buddy or want one, something to consider.
4. No equity: You’ll pay a substantial amount over the years for rent and never build up equity or take advantage of real estate appreciation. In popular areas, renting means missing out on building up your personal assets and net worth.
5. Space and storage: If you’re in a more traditional apartment situation, usually storage is limited and you’ll have shared common spaces. As you get older you’ll probably need more storage space and appreciate your own personal yard and lawn.

House-owner Pros

1. Asset appreciation: Once you buy a house, you can take advantage of real estate appreciation! Say you put 20% down on a $200,000 house ($40k) and the house appreciates 5% over the course of a year. Do the math and your $40k investment has now returned $10k in a single year. That’s about 25% for a physical asset which is pretty durn good! And a safe investment (usually) given it’s tied to physical property.
2. Tax deduction: Your mortgage payments are usually mostly interest early on in the mortgage, maybe 65% of it! But all that interest is tax-deductible so you’ll get a percentage back come April 15. But in the end, that money probably ends up being used to pay your property taxes and/or property insurance.
3. Consistent payments: With a mortgage you’ll know what your housing costs are from year to year. While most rental markets are somewhat controlled, you won’t risk your landlord jacking up the rent if you live in a highly desired area.
4. Building equity: In addition to asset appreciation, as you pay down your mortgage you will build equity (money and ownership of your house) over time. Your mortgage payment will slowly pay down more of your principal (what you owe on house) vs interest over time. Equity which is accessible when you sell your house/property or through a home equity loan.
5. Upgrades and Improvement: Unlike living in an apartment, you own the place and can decorate, paint and upgrade your space as you see fit. Just be aware that eventually you will probably resell your home and account for a future buyer!
6. More space: If you’re starting a family, you’ll probably need 3 bedrooms or more which is tougher to find in a rental scenario. And a garage is crucial for storing all your extra gear and belongings.

House-owner Cons

1. Maintenance: Owning a house means you’re now responsible for some very expensive items that will need to be maintained. Your HVAC (heating-cooling), water heater, kitchen appliances, siding, gutters, driveway and roof all have pretty long life-spans but you need to put money aside for when they need to be replaced or serviced. And you may need to mow that lawn or maintain a garden!
2. Property taxes and homeowners insurance: Depending on where you live they could be under 1% or as high as 2.5% of your assessed property value. You’ll also need to account for homeowners insurance on your house or condo. And if you don’t put down a 20% downpayment, you’ll also have to pay PMI, a mortgage insurance to protect your mortgage provider.
3. Home Owners Association (HOA) fees and rules: Another expense that varies quite a bit and you’ll be subject to rules within your HOA community covering everything from paint color, maintaining your grounds and more. While there are some houses that are not part of an HOA, I think most newer developments fall under an HOA.
4. Lack of mobility: Owning a house means you won’t be able to move easily or quickly, especially if you don’t live in a growing and desirable region. That means looking for and accepting a job in another area of the country will be a lot of work. And if you have to stay, it also means potentially limiting your career and social options.

When all is said and done, there are no “right choices” between renting and owning. But as you grow older and start to make money and accumulate things, home ownership will likely be the better option. Your lifestyle changes over the decades and you’ll find that some areas are cheaper to rent in vs. some areas cheaper to own in. In the end if you live in an area where home values are appreciating and mortgage rates are low, you should certainly consider buying a home from an investment standpoint. Just make sure you’re saving for a good down-payment and have a high credit rating before you take the leap!

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When you’re ready to purchase a home, please check out my home buying tips – Buying a Home, Tips and Advice for a Newbie