Renting vs Buying: What Choice is Best for You?

Though the choice to rent or buy often comes down to each individual and family situation, there are plenty of pros and cons to consider as you make your decision. Let's look at a few to help you make the best choice for your current housing needs and goals.

Looking at the Numbers

From a financial standpoint, it's often assumed that buying is the best choice. Many have said that renting is just "throwing money away."  However, with today's high interest rates, increasing cost of insurance, property taxes and unexpected maintenance costs, homeownership is not always the best option.

For renters, yes -- the monthly rent is a home expense that you won't ever see again. Furthermore, landlords can increase the rent each year by 3%. But besides the security deposit and renter's insurance, a renter doesn't have to pay the excessive fees of maintenance, taxes and a large down payment on the place they reside.   

For buyers, the upfront costs of residing in a home are exponentially higher. The down payment on a home being financed is anywhere from 3-20% of a home's purchase price. Mortgage interest rates are also currently high at 6-7% of the amount financed. Add onto that the yearly cost of property taxes (average of 1.11% of purchase price in the US), insurance and maintenance costs (1-2% of a home's value each year and can be more if a home is older), and you're looking at a huge expense, especially with homes in LA County selling for an average of $900,000.

Buying a home is expensive overall but many believe it can be a good investment because of the anticipated yearly increase of home prices. Adjusting for inflation, each year home values increase by about 2% across the country. There are also more tax deductions available to homeowners than renters. However, many today are saying that the amount used to purchase and upkeep a home could be better invested in other ways, such as the stock market which can yield much higher returns in a shorter time span.

Flexibility or Stability?

Renting allows more flexibility financially since lease contracts usually last a year or can even be month-to-month, whereas a mortgage on a home usually lasts 15-30 years and may even have prepayment penalties in the contract if you choose to sell the home within the first few years. Because of this, it probably makes more sense to rent a home if you currently don't have a stable job and you expect to live somewhere for only 1-2 years. In the time you rent, you can also focus on repairing credit and saving up money for the down payment on buying a home.

But if you hope to set down roots and stay somewhere for 8-10 years, buying a home may provide stability for your family and the predictability of fixed payments that won't increase from inflation (granted you don't have an adjustable rate mortgage). Also, the capital appreciation and equity of your home after a decade of living there would probably be significant, meaning you would profit by selling the home for a much higher price than you originally bought it for.

Other Factors to Consider

Renting a home definitely comes with some benefits that aren't just financial. Lots of condos, townhomes and apartments have amenities like pools, security, landscaping services, a gym, and possibly even a recreation room. Renters usually have access to all these amenities without having to pay monthly homeowners association fees which are covered by the owner. Even when renting a single-family residence, landlords often pay for gardening services and upkeep/maintenance of the property. The added flexibility of getting to move to a better location within a few months' time without having the hassle of marketing your home for sale and waiting for an escrow to successfully finish can be invaluable when new opportunities arise.

Owning your own home definitely comes with more benefits than just financial as well. You have flexibility of getting to change up and even renovate your home according to your style (although you would need the approval of your mortgage lender for a major renovation). For those who love animals, pet restrictions are limited only to what the city will allow. You don't need to pay a special pet deposit or insurance in the case your pet does some wear and tear on your home. The stability of having a home that you know your family can stay in for the long run can also add peace of mind. Homeowners don't have to worry about getting kicked out of their home because of a landlord wanting to sell or live in the home you're renting.

All in all, there are many pros and cons to buying and renting a home. Whether you choose to rent or buy, we can help you find the perfect place for you or your family in whatever season of life you're in. Contact us today!