Owning a home is a significant milestone in life and is considered by many as a measure of one’s success. Choosing whether to rent or buy a house is a big decision that can impact your finances, lifestyle, and goals. Whichever you choose, both require a steady income to pay the associated costs. However, there are differences between renting and owning a home. Homeowners have responsibilities, while renters enjoy flexibility.
On the other hand, being a homeowner and renter has pros and cons. Deciding to rent or own a home depends on your lifestyle and financial health. But if you’re financially capable of doing both and confused about what to do, read on as we highlight the differences between renting and owning a home.
Renting a Home
If you think you’re just throwing away money by paying monthly rent, you’re wrong about that. Basically, you need to spend money to have a place to live. While you’re not building equity by renting, homeownership costs more than that. By renting, you have a fixed housing cost monthly, which is specified on your lease. So you can plan your finances accordingly.
But every time the lease is renewed, renters may face a rent increase, which can be steep in some towns. Meanwhile, there are areas with rent ceilings and control. If you’re renting, you can also move once your lease ends and relocate to a much better apartment. However, it can be frustrating if your landlord sells the property or increase the rent more than you can afford.
Owning a Home
Owning a home comes with tangible and intangible benefits. Aside from being your own landlord, you can decide how your space will look and enjoy stability and ownership. On the contrary, owning a home means you’re tied to the property. Note that real estate is an illiquid asset. So moving to a different neighborhood will be expensive.
Moreover, selling it at the price you want and when you need to is difficult, especially if the housing market plummets. If you sell your property, there are considerable transaction costs. The general cost of owning a home is higher than renting despite a low mortgage. But if you still decide to own a home than rent, here are the following expenses that come with being a homeowner:
- Earthquake Insurance
- Homeowners Insurance
- Lender-Required Flood Insurance
- Pest control
- Pool cleaning
- Property taxes
- Trash pickup
- Tree trimming
- Water and sewer service
Differences Between Renting and Owning
Although owning a home is an investment, many factors can negatively or positively impact the value of your property. These include maintenance, economic issues, housing surplus, old interiors, and exterior environment. Environmental factors, like nearby hazardous waste sites and landfills, can also affect the value of your home.
Meanwhile, it will affect renters since negative factors may force landlords to lower rental costs, especially if they’re desperate for revenue. But the property value will soar if the overall conditions are good.
Another factor to consider before owning a home is possible tax benefits. If deductions are itemized, you can reduce federal tax liability with the mortgage interest deduction. But if you’re renting a home, you don’t have a mortgage tax deduction.
Also, note that you can still enjoy the standard deduction as all taxpayers do. The same goes for homeowners who don’t have deductions to itemize. Nonetheless, the rent may be less or similar to homeowners’ after-tax cost, so don’t base your decision on tax deductions.
As stated earlier, homeowners have responsibilities, including regular maintenance and repair, which can be expensive. Even if you spend money on renovation projects, it doesn’t automatically increase the value of your property.
But if you’re renting, you don’t have to worry about maintenance and repair costs since the landlord will handle everything. For instance, if the apartment has leaky pipes or the HVAC system breaks down, the landlord should fix it.
Considering owning a home requires regular upkeep to maintain its structural integrity, homeowners should ensure they have time to take care of maintenance or repair. If you travel a lot, you may not have enough time to commit to the responsibilities of homeowners. Instead, renting may be the best option for the time being.
Nonetheless, choosing to rent or own should be based on your financial condition, goals, and comfort. If renting is more applicable due to your fast-paced lifestyle, don’t mind people telling you it’s more cost-efficient to own a home than rent. In short, the decision all depends on you.