Investing in real estate property offers a great way to build wealth over time. You can have a steady income stream from rentals and a potential long-term appreciation of your property’s value. On the flip side, buying a property is a huge investment. You will never get one without upfront money for a down payment or the total price. Apart from financial capacity, another factor to consider is how long you plan to stay in one place. The longer you stay, the more logical and practical it is to consider owning a home. For those looking for a place yet unsure if they want to settle there for a long time, renting may be the better option. Owning a home does not always mean saving money, and renting does not always mean paying more. Buying property vs renting a home each has its pros and cons. This article will discuss the key differences between buying a property vs renting a home and help you decide which is best for you and your situation.
Buying a Home
Most, if not all, people dreamt of owning a home at some point in their lives. For many, owning property represents independence and stability. Although homeownership may seem like a great idea, it still has advantages and disadvantages.
Pros
1. Stability and community involvement
Buying a home can provide stability, especially for families with children. Having your property means staying there for a long time, a highly beneficial situation in terms of community building and involvement.
Being a homeowner lets you settle down in the area where your property is and connect with the people. Additionally, having a safe and stable place to live is foundational to your children’s well-being and development.
2. Freedom to customize your home
You can customize your property however you want. Do you want beige-colored walls, wood flooring, and a retro-themed living area? Take all the time you need to decorate it the way you want. You own the house, so customize and personalize it to your heart’s content.
3. Builds equity
Equity is your estate’s amount minus the current mortgage balance when you purchase it. For example, you bought a property worth $400,000, and your loan balance is $200,000. Now, you have an equity of $200,000.
When you own a house, you can build equity and borrow an asset if you need to fulfill financial obligations like paying off your kids’ college tuition or repaying high-cost debts. Additionally, assuming you are making home improvements, you are potentially increasing your property’s value and home equity.
Cons
1. Repair and maintenance costs
Aside from down payment, mortgage, and property taxes, one disadvantage of homeownership is repairing and maintaining your home. If you think you already paid too much when you bought your property, you will be surprised with how much you will likely spend preserving it as years go by.
Save at least 1% of your property’s value for its upkeep to prepare yourself for future costs. Other factors like weather and your house’s age and condition can affect how much you will spend on property maintenance.
2. Risk of decreasing value
As much as your property’s market value can appreciate, it can fluctuate. You may buy a property during an economic downturn, affecting its worth. Although you want to make things go your way, predicting how the economy will turn out is impossible since it often depends on politics.
3. Property taxes
Apart from the mortgage, repair, and maintenance costs, prepare to pay for property taxes, which are calculated based on location and value. Governments use these taxes to provide and improve critical public services and infrastructure such as schools, roads, and highways.
If you fail to pay your property taxes, the government can impose a tax lien or foreclose your property.
Renting
Compared to homeownership, renting does not have all the accountabilities linked with owning a property. Additionally, renting gives you flexibility in maintaining your lifestyle. It may be the best option if you are still undecided about settling down or investing in a property.
Pros
1. Ease of moving
Renters can live anywhere. Did your current lease increase? Do you want to cut down costs and downsize? Did you get a new job in another town or city? Settle your remaining rent balance and start moving into a house or condo in your desired area. Renting is easy because you have no place to sell and no penalty to pay when your contract ends.
2. Access to amenities
Tenants usually enjoy and have access to amenities such as in-ground pools or fitness centers at various midscale to upscale apartment complexes without additional charges.
If homeowners want to experience and access such facilities, they will likely need to spend thousands (or even millions) for installation and maintenance. Condo owners are not exempted from these costs either because they pay them through their homeowner’s association fees that are due monthly.
3. No property taxes
Renters are exempt from property taxes, a hefty burden that homeowners carry. In some areas, especially in urban cities, taxes can amount to thousands annually. The higher the homes are worth, the more estate owners need to pay property taxes. As a renter, that is another worry you can save yourself from.
Cons
1. Instability
While renting offers financial freedom, it comes with instability. Additionally, if you unexpectedly lose your job, you will struggle to pay rent. You might even need to relocate on short notice if your landlord decides to sell their property and issue a 30-day notice.
2. Rental regulations
Because you do not own the property, you must abide by various rental regulations since you only live there temporarily. Compared to homeownership, you cannot renovate, customize, or make any changes to your homes without your landlord’s approval.
If you find comfort in decorating your home, you may find these requirements restrictive. Additionally, violating these rules might get you in trouble and evicted from the property.
3. Unstable rent fees
Although you pay fixed rent, property owners can still increase the lease over time, affecting your monthly or annual budget. If the market value of real estate appreciates rapidly, you will be stuck with higher rental payments.
To Rent or Own?
So, these were some of the pros and cons of buying property vs renting home. Whether you should rent or own depends on your financial capacity and personal situation, like lifestyle and personal goals. A flat-out right or wrong answer between renting or owning also rarely exists. Instead, they are branded as better and worse options based on your circumstances. To find which option is best for you, weigh the pros and cons of each according to your income, savings, and living conditions.
If you are ready to purchase your home, you can get pre-approved for a home loan to kickstart your real estate acquisition. Consult with knowledgeable real estate professionals to help you land the property of your dreams in the most efficient way possible.
