As of 2017, more American households were renting their homes than at any point over the past 50 years, according to Pew Research Center analysis of Census Bureau housing data. The report also notes that while groups like young adults have historically been more likely to rent, increasing rental rates among them over the past decade, rental prices have also increased among those less inclined to rent, such as middle-aged and white adults.
No matter which group you’re a part of, if you’re asking yourself the question, “Should I rent or buy a house?” it’s essential to understand the pros and cons.
Lower payments. While it’s not always the case, renting a home can be cheaper than buying. It may cover some utility costs, too, providing additional savings.
Fixed costs. When renting a home, you probably won’t have to worry about any unexpected repairs, having to replace a broken water heater or a leaky roof. Your landlord would be responsible for fixing and paying for those issues – you pay the monthly rent and usually some of the utilities like the electric bill along with cable and Internet. It’s a lot less stressful when there are no concerns over financial surprises. And, coupled with lower payments, that’s even more money in your pocket to use elsewhere, perhaps investing in the stock market or saving towards buying a house you really want.
Flexibility. If your circumstances change and you need to move for a job or another reason, it’s much easier to get out of a lease than to sell your home. If you think there’s a chance you won’t be living in the area for at least a few years (ideally five or more), renting is usually the better option.
No tax incentives. When you own a home, you can receive tax credits for becoming a homeowner. In most cases, the interest you pay on the mortgage is deductible, and it can add up to a lot come tax time. The tax incentives are one of the most significant benefits of owning versus renting a home.
You won’t be building equity. Your monthly payments aren’t building up savings or being invested in long-term security. Homeownership is generally an excellent long-term investment. While it has some risk, you can take steps to increase a home’s value to decrease it. For example, if you invest in a renovation, the value goes up, but if you rent, any changes you make toward the house increase the value of your landlord’s property, meaning you won’t see any return on that investment. When it’s time to move, you’re virtually starting over from scratch.
Lack of Stability. When you’re renting, you never know when you’re going to have to move. A rented house is temporary, so if the owner decides to sell, you’re likely going to be forced to find something else, potentially within just 30 days. And, as inflation increases the cost of living, your rent is likely to be raised too. Homeowners won’t be forced out of their homes unless they default on their mortgage, and the monthly payments on a fixed-rate mortgage are consistent no matter what the economy is like.