One of the biggest debates in the world of personal finance is whether or not you should buy or rent when it comes to housing.
“There are pros and cons to each side of the debate,” says Tom Drake, a financial analyst and the owner of Canadian Finance Blog. “What it comes down to, though, is your personal lifestyle and what works for you and your long-term financial goals.”
Proponents of buying a home point to the fact that you have the opportunity to build equity that can serve you well in the long run. When you own a home, you own a large asset that can be useful down the road. Not only that, but there is the potential for appreciation, especially if you live in a desirable real estate market that sees home values increase at a strong annual rate.
On the other hand, supporters of a renting lifestyle point out that most homes aren’t located in areas where you’re going to see an appreciation of 5% to 10% annually. For most real estate markets, the annual appreciation is going to be closer 2% to 3%. On top of that, you have costs including interest paid, maintenance, repairs and property taxes. Many homebuyers will be lucky to break even. “Rarely is your primary residence a true financial investment that will pay off,” says Drake, who bought his home just before real estate in Edmonton, Alberta took off and is likely to benefit from appreciation.
The reality is that whether you buy or rent a home should depend on your personal situation and your goals. What’s right for one person might not be right for another. In fact, your preferences might change at different points in your life. As you consider the choice to rent or buy, here are some lifestyle factors to consider:
How long you plan to stay
“Buying a home essentially ties you down to a location,” Drake points out. “If you know that you are going to move around a lot in the next few years, it might make more sense to rent.”
Unless you plan to become a landlord and rent out the property after you leave, buying for a short period is likely to result in losses to your budget. Renting offers more flexibility in living arrangements since you can leave with greater ease, and you don’t have to worry about trying to sell the home before you take off for your next living arrangement.
There are a lot of inconveniences that come with owning a home. You handle maintenance and repairs. If you have a yard, you need to take care of it. When you rent, though, many of these items are taken care of by the landlord. You don’t have to worry about maintenance, and if something breaks, it’s someone else’s responsibility.
“Many rental communities, especially if you live in a luxury apartment or condo community, come with conveniences and amenities you might not get if you buy,” says Drake. Amenities like a workout room, pool, clubhouse and even walking trails might be present in some rental communities. If you like these amenities close to your home so that you don’t have to drive to the gym or if you like the idea of having nearby facilities for gatherings, renting can match your idea of lifestyle convenience.
While some suburban communities have HOAs that provide some amenities, they often cost extra, while access to rental amenities are often included in your monthly payment.
Location and market
You should also consider the location and the real estate market. If your lifestyle preferences are for a big lot and lots of privacy, buying a home outside of a city center might make sense — and be less expensive. However, if you like living near urban amenities, it might be too expensive to buy, and renting might make more sense.
In some markets, the cost of buying comes with a lower monthly price tag than renting. In these markets, even if you prefer to rent, you might be better off buying. If renting is much cheaper on a monthly basis, though, that could be the right choice for now. You can invest or save the difference in cost and later when circumstances are different, you might be able to change your approach.
“No matter your preferences, it might be worth it to rent for six months or a year before deciding, especially if you are in a new area,” says Drake. “This allows you to get a feel for the location and get to know what you like or don’t like about it. You don’t want to be in a position where you buy in a new area, and then end up leaving less than a year later — and are stuck with this house to unload.”
Finally, don’t forget to weigh the risks associated with buying and renting. “With buying, you run the risk of ending up needing to sell even if the market drops,” Drake points out. “Even homes lose value, and you could be out tens of thousands of dollars.”
However, there are risks associated with renting as well. Landlords can increase rents to the point where you are priced out of your housing, and you are forced to move. You also don’t build equity. Unless you are investing (and that comes with its own risks) to increase your net worth without the help of a home, you could wind up in financial trouble down the road.
Carefully think about your financial situation, and make a decision to buy or rent based on what is likely to work best for you and match your lifestyle.