When to Rent vs. Buy: All the Pros and Cons You Should Consider

Is it better to rent versus buy a home? An endless array of opinions out there will attempt to influence your decision — so the question can be confusing and downright daunting.

Yes, homeownership is one of many paths to building wealth — but it’s not always the best one for everybody’s set of individual circumstances.

When considering whether it’s in your personal best interest to rent or to buy, you’ll weigh important factors such as monthly housing costs, how long you intend to stay put, and the specific real estate market conditions in your area. Where you live, how much money you make, your lifestyle, your savings, your household configuration, and so many more personal factors all come into play.

How will you know definitively whether and when to rent versus buy? In short, there is no single correct answer for everybody. (Sorry!) It’s simply an individual decision. So instead of telling you what to do, we’ve combed the data and expert perspective to give you the facts on when it’s better to rent, or to buy your own home.

Armed with this info, you’ll be well-equipped to figure out which living arrangement is right for your lifestyle and finances — right now.

Pros of renting: Flexibility, short-term leases, and reduced maintenance

Your market could support renting more than buying if home prices are simply too expensive in your area. But there are pros even if the decision to rent decides itself by process of elimination. As a renter, you’re free of additional costs homeowners always incur, such as insurance and property taxes. Plus, there’s the cost of maintenance and upkeep — line items you simply defer to a landlord when you rent.

When you rent, you’re beholden only to the terms of what may be a 12-month lease. That gives you a load of lifestyle flexibility, compared with what may be a 30-year mortgage. If you’re dating, for instance, and want to be in a position to move more easily should a relationship solidify, renting might be a better choice for you. Same if you have kids whose growth and evolution through school is an important factor requiring flexibility — or if you’re in a position to take care of loved ones who may be ill with changing housing needs.

Renting also allows more professional flexibility: If you don’t own your home, you’re freer to change jobs, or to travel for long periods of time with fewer restrictions. And when you own — especially if you’re heavily mortgaged — you may feel more beholden to the particular job and salary that allowed you to commit to that mortgage to begin with. If you don’t love your job, that might be undue (and unwelcome) pressure.

If you’re not putting money into a down payment, plus all those additional hidden costs of homebuying, you can instead put that money into your own business — or toward any other investment that interests you.

Gregory Brown, a top-selling agent with 17 years of experience in Fort Wayne, Indiana, offers a couple of real-world scenarios for when renting might make a lot of sense — both logistically and financially.

Let’s say a home-seeker is on a six-month contract with a job — and if things go well, a full-time position offer might be coming down the pike. “That makes sense,” as a renting situation, Brown says.

Another example of a good time to rent might be for a short-term situation during the building of a dream home at another location. “If you buy a house for $250,000 and if you move in a year, you’re going to pay a 6% commission, plus you’re going to be paying some closing costs — it usually comes out to be around 8%,” he says. “Our market has been appreciating for the last five years between 4% and 6%, so if somebody’s going to move in a year, or it’s going to take them a year to buy a home, it’s going to be tough to recoup.”

Cons of renting: Fluctuating costs, instability, and limited home updates

Of course, also consider that your market could support buying more than renting — your rent might just as easily be put toward a home you can feasibly afford. The New York Times’ excellent rent-versus-buy calculator might help give you a better idea of when that’s the case in your area.

Also consider that the flip side of having all that lifestyle flexibility is the other side of the same coin: the potential for a sense that your lifestyle feels unstable. If you rent, you might be in a less financially advantageous position to care for loved ones who may need you down the road.

Beyond that, you have limited flexibility to make your space your own when you rent; you’re running all decisions about design and improvements by your landlord for approval.

Depending on your area, you might find that it’s the cost of renting — not buying — that’s the nonstarter. Off the bat, you’re likely responsible for your first and last month’s rent, plus the security deposit, and costs of moving — all upfront rental expenses.

Don’t forget a pet deposit if you have furry family members, Brown advises, pointing out many other potential hidden costs of renting as well: “Sometimes if there’s a washer and dryer, they charge you an extra $100 a month for that. And if you want a garage, they charge you an extra $250 month for that.”

Plus, your rent could fluctuate — even quite significantly, depending on your local legislation. Or your landlord could sell the property, leaving you without the home you built there.

Pros of buying: Peace and quiet, stable costs, investment opportunities

Play with the rent-versus-buy calculator to consider whether your market could support buying more than renting for your primary home. Or you might choose to buy a house that’s in a different, more affordable, metro area and rent it out as an investment strategy.

When you buy a primary home, you’re also buying a sense of stability — both in terms of lifestyle, and emotional wellbeing. (You can stay forever if you like!) You can establish roots in a neighborhood, and build your relationship with the community.

“When you own a home, you don’t have to worry about the neighbor upstairs playing their music too loud, and somebody having a party or whatever,” Brown says. “You just have more control on your life. You’re not worried about what somebody else is doing on the other side of the wall.”

You also have the ultimate flexibility with your personal living space — the costs may be completely your own, but so are the decisions. Your stability is financial, too; your rent will never fluctuate.

When you own your home, you also have the ability to rent it out — such as in the context of an Airbnb or vacation rental — if you choose.

And don’t forget that you’re paying down the principal on your mortgage loan over time when you buy. “It’s not much in the first year, but after two, three, four, five years, it starts adding up,” Brown says.

Plus, he adds, “The interest that you pay is tax deductible against your federal income, so not only are you paying principal down, you’re gaining a tax benefit and you’re gaining appreciation.”

Cons of buying: Long-term commitment, maintenance responsibilities, and taxes

Even if you prefer to buy, your market could better support renting. (Again, examine the rent-versus-buy calculator and play around with your specific dollar figures.)

As well, when you buy, you limit your lifestyle flexibility. You might find yourself committed to a home that doesn’t work for your growing family, for instance. And you’re less flexible to move for your family’s needs. You’re also less flexible when it comes to professional fluctuations: The anxiety around keeping your job and existing salary may be higher when you own.

Depending on the specifics of your market, you have to stay a minimum of a couple years or more or risk capital gains taxes and wiping out most — or all — of your potential profit on buying a home. You could even lose money on it. There’s simply no guarantee how quickly your home will appreciate in value.

Brown says that in Fort Wayne, the time needed to recoup on a homebuying investment is about 1.5 years, noting that it might take up to 3.5 years elsewhere in the country.

And while we’d all like to think we’re smart enough to avoid buying at the top of the market, there’s simply no way of knowing if you’re doing it or not; it happens.

Of course, if you buy a home, you’ve also bought into the cost associated with maintenance.“When I’m looking at a house, I’ve got key things that I look at right away,” Brown says. “How old is the roof, how old are the windows, how old is the furnace, and how old is the air conditioner? Because those things are your four biggest-ticket items when you’re talking about homeownership.”

So when considering maintenance costs, he advises buyers look past the ooh-ahh factor of such showy items as new kitchen countertops or stainless steel appliances to those potential costs.

He cites costs in the range of about $7,000 to $10,000 for a roof, about $5,000 apiece for a furnace and air conditioner, and $500 to $600 per window to replace. Relatively speaking, cosmetic costs are cheap — like carpet at about $2.75 per square foot, or a fresh coat of paint.

“You have to look at those big-ticket items,” Brown says.

“If a house is going to need $25,000 in updating in the next two to four years, it’s probably a good idea to pass on it or to rent versus getting into something that is going to be a money pit. When you sink that kind of money into a home, you’re lucky to get half back.”

Plus, buying a home can simply be an intense experience — and it just might not be right for everyone at every point in their lives. “If I have somebody where they’re going to have a baby, or they’ve got a relative that is transitioning to assisted living — those situations when life happens — I wouldn’t want to put somebody through homebuying,” Brown says.

“Offers are so competitive, buyers and sellers are on pins and needles more than ever. So, it can be stressful. And if they’re going through a traumatic experience, I tell people, ‘Hey, we can put a pause button on this.’”

Header Image Source: (Kelly Sikkema/ Unsplash)