To rent a house or to buy one—is the decision tearing you apart?
When it comes to having a roof on our head, we’re left with two choices. Either we can rent a house or we can buy it to make it our own. The common answer to the question “should I rent or buy a house” is that one should buy, but that’s not entirely true.
Renting a house has its own share of positives and buying a house, paying the mortgage to make it your own after 20-something years has its own plus points. After all, this problem is very much deep-rooted with one’s own ego.
We all want to own the house of our dreams. It’s something that our parents and their parents have dreamt of (ah, the concept of owning a piece of land on earth sounds so empowering) and we strive for the same.
But compared to monthly mortgage, home-equity shenanigans and of course, ownership costs, it feels like paying rent for a house is better. For instance, if a pipe breaks down, the homeowner you would have to bear the costs, while the tenant you wouldn’t have to worry about it.
This is just a small example, for deciding whether one should rent or buy a house isn’t just restricted to ego issues. Real kickers are factors like your finances, long term financial goals, real estate market—basically, money.
Our point is that there are some people who believe that buying a house is better because you get the ownership along with it. On the other hand renting is efficient, but is it really wise to pay money to someone and building no equity on it?
While the “Should I rent or buy a house” debate rages on, let’s look at some concrete bullet points to find out who wins—Team Rent or Team Buy?
Renting v/s Buying a House: What does it Cost?
First things first, you have to understand the costs involved in renting a house and buying it. We often believe that (after 20+ years of) paying the mortgage for a house we own, we’ll not incur any costs. Or tenants believe that all they have to do pay the rent and that’d be that.
In both of these cases, there’s more than what meets the eye. Let’s look at costs involving renting a house and buying it. They’d be critical in calculating your house costs from a bird’s eye view.
What does it Cost to Rent a House?
- The costs of renting a house are based on the terms of the lease. A generic lease calls for first month’s rent, last month’s rent and a security deposit that should be equivalent to one month’s rent.
- But even before you rent a house, you’ll incur inspection costs. Rental ads and classifieds promise n bedrooms and gazillion amenities, but we don’t know how big those rooms are and whether the amenities are worth it or not.
Inspecting a house thoroughly takes time, but is well worth the cost even when you’re renting it.
- Amenities are crucial while rent-house hunting. Water, gas and internet might or might not be included in your rent, but you’ve got to check whether they’re actually there or they just exist for namesake. Amenities can bring rental costs down by widest of margins.
- As a responsible tenant, you’d have to take care of property maintenance as well. That’s what the landlord expects from a responsible tenant and for that, you’d have to incur additional costs to purchase equipment or to hire a person for property upkeep.
- Once your lease expires, the landlord is free to shoot up your rent as much as s/he wants. So you might be shifting houses lots of times throughout the course of time.
What does it Cost to Buy a House?
- Did you know that the median listing price of a house in the USA is somewhere close to $280k? Aspiring homeowners have to pay high amounts of money for long spans of time in order to build home equity. But the buck doesn’t stop there.
- As a homeowner, you have to take care of everything from uprooted nails, broken faucets and of course, regular tweaks inside the four walls. Even if it’s considered wise to buy a house and build on equity, the total costs come out to be much more than the equity, which ultimately defeats the purpose.
Questions to Ask before Renting/Buying a House
No matter how much you weigh in the options of renting or buying a house, you have to ask yourself some key questions. Answers to these questions will pretty much decide what the best decision for you is:
- Can you afford a house? How much money do you have in your rainy day funds?
How do I decide whether I should rent or buy a house? I have to peep into my wallet. If my stream of income gives me the luxury to pay off the mortgage for some years, then there isn’t harm in buying a house. But if I can’t sign myself up to a commitment of that sort, I should stick to being a tenant till I’m stable on my feet.
- Are you a sucker for staying in your new home or you’ll be moving often?
This factor is very much dependant on my personal commitments. If I’m a bachelor or I’m living together with my S.O., I’d prefer renting a condo which I can switch here and now. But as a family man, I would seek a sense of security; hence I’ll opt for a stable place to crash for a long time.
- Are you flexible enough to settle with what’s on the table or do you need everything your way?
If I walk into a house up for rent and I start identifying what I’d change and what I’d not, then it’s about time I start gathering money to buy a house. If I’m flexible enough to manage this problem, then renting in might be wise. If I wish to impose my “Dream House” blueprint wherever I go, I should think about buying a house.
- Do you feel that you’re responsible for repairs and maintenance where you stay?
This one’s simple—if I consider maintenance and repairs too big of an expense, I should definitely rent in. However, if I’m completely okay in dealing with these expenses, then I’d take real good care of my house.
- Think about your long term goals—be it financial, career, or life goals.
Am I at a place in life where I can afford to lock down a considerate portion of my income towards mortgage payments, let alone maintenance of living in my own house? If yes, then I’ve planned well. But if there’s even a slightest of cloud on the judgment, I have to figure my stuff out before deciding whether should I rent or buy a house.
If I’m able to religiously comprehend right answers to these questions, then it won’t be a biggie for me to decide whether should I rent or buy a house. Let’s look at the pros and cons of buying a house and renting it for better clarity.
Pros and Cons of Buying a House
|· Build equity and credit by paying the mortgage||· Get ready to dive into loads of paperwork with a sizable amount of money in hand|
|· Drop the tenant-landlord jitters as you’re not answerable to anyone||· You could lose your money if the value plummets.|
|· Live a stable life—esp. with kids||· Your expenses don’t stop at mortgage payments|
|· There are possible tax benefits & property tax bills to take advantage of||· House prices are on the rise every passing day|
|· Give your home the dream makeover by tweaking it to your fancies||· Do all the makeover you want, but you’ll be responsible for repairs and remodeling|
Pros and Cons of Renting a House
|· Initial costs & paperwork are close to nothing as compared to buying a house||· Property belongs to the landlord; s/he can rent or sell the property anytime|
|· Feel free to switch houses as and when you want||· There aren’t a lot of choices for places to rent, and the tenant application might get rejected|
|· You’re not responsible for maintenance, but don’t forget to be responsible enough!||· You’ll find yourself on the move every now and then|
|· Even if the house value declines, it’s not your headache||· Paying rent won’t build your equity in any form|
|· You can build your credit if your landlord reports rent payments to credit bureaus.||· There are no tax benefits|
Final Verdict: Rent v/s Buy Rent, then Buy!
If you are wondering which one comes out to be more economical when you weigh on scales, then a study from NerdWallet says that buying a house is economical. Well, at least for first three to four years, after which mortgage payments are a less bitter pill to swallow.
If you and your kin have ‘the dream house’ in your bucket list, then you should gather all your money, switch to better paying jobs, scale high up the ladder and rake in the money to own it. If you can’t keep up with the payments (and you don’t have a backup), then stay in a rented condo for heaven’s sake.
Owning a house isn’t the only expense you have in life—there’s debt, bills, Starbucks Latte, NetFlix and binge-eating too. If it were me, I would consider all these factors before deciding whether I should rent or buy a house.
Now you know what it’s like to reach the maximum level of being an adult by owning a house. It’s time for me to look around and decide—whether I should rent or buy a house? May the best choice win!