Not sure if your next home should be rented or purchased? There are benefits and downsides to each side of the rent vs. buy debate.
Here’s a look at some of the pros and cons, including costs, customization, and responsibilities, of renting or buying a home so you can make an informed decision.
Monthly Cost
Rent: $1,250/month rent payment.
(Based on the median rental price for a 2-bedroom in 2016 according to Apartmentlist.com).
Buy: $1,333 monthly mortgage payment.
(Based for a $250,000 home according to the Zillow Mortgage calculator for the median purchase price for homes in 2016 according to Realtor.com.)
Upfront Costs
Rent: $3,750
(First and last month’s rent + $1,250 security deposit)
Renters have the potential to receive their security deposit back only if their is no property damage or cleaning required at move-out.
Buy: $25,000
(10% down payment for a $250,000 house)
The upfront costs involved with owning a home go directly towards paying off your loan.
Stability
Rent: Variable
Monthly costs are variable if a landlord decides to raise the rent. Renters have the option to move if their rent gets increased or if their income level changes. Renters can move easily, without waiting for a home to sell.
Buy: Fixed
Monthly payments stay the same. Home values have the potential to go down but monthly payments are fixed. If your income level changes, you are still tied to your 30-year loan. If a homeowner decides to move, it can be hard to sell a home quickly.
Customization
Rent: Limited
Renters have limited, if any, flexibility when it comes to customizing a home. Renovations, painting, and property upgrades are typically violate lease terms. Renters are required to ask landlords or property managers before doing anything. Any home improvement projects that do get approved go towards improving the value of someone else’s home.
Buy: Unlimited
Home-owners can improve, renovate, and remodel to increase a home’s value and make it their own. Home-owners are sometimes limited by HOA rules or local ordinances when it comes to home improvement projects.
Maintenance
Rent: Differed to landlord.
Home maintenance is typically deferred to the landlord or property owner. Renters must report even small maintenance issues or risk paying for any damage if a maintenance issue went unreported.
Buy: Homeowner’s responsibility.
Homeowners are 100% responsible for the cost and management of home maintenance.
Wells Fargo suggests that “Most homeowners need to spend 1% to 2% of the purchase price of their home every year for routine maintenance projects, such as window replacement and roofing repair.” So a $250,000 home would expect to cost $2,5000 in maintenance.
How do the two housing options stack up?
Rent: Similar monthly payment, lower upfront cost, variable monthly cost, flexibility when it comes to moving, limited customization, payment go someone else, no maintenance costs.
Buy: Similar monthly payment, big upfront cost, fixed monthly cost, limited flexibility when it comes to moving, unlimited customization potential, payments build your own equity, annual maintenance expenses and management.
