Having a roof over your head is a must in almost any situation and one of the most important decisions you will ever make is whether to buy or rent your home. One of the biggest factors of owning a home versus just renting a home is the cost of doing so but there are many other factors as well. There are pros and cons to buying as well as renting, and we’ll go through all the aspects in this article in order to help you make the right decision for you.
Renting or Buying
For many residents, owning a home requires significant cash outlays and as a result, they are much more comfortable renting. Renting a home can cause ease of mind especially when it comes to financial burdens, however, your asset management will not increase due to the lack of real estate accumulation. Here are the pros and cons of renting a home.
One of the pros of renting an apartment or condo instead of owning a home is that it is much easier to deal with. You pay the rent once a month, and don’t have to worry about too much else. Most of time, the majority of the utilities are included in the rent, and if they aren’t, it’s just the electricity you have to worry about. As a result, renting a home can be much cheaper on the wallet. You don’t have to worry about annual property tax, a down payment, home insurance or any other extra fees; you just move in, pay rent and that’s it.
Another pro when it comes to renting is that you don’t have to worry about any extra cash outlays or work required due to maintenance. If something breaks down or the plumbing leaks etc, you just have to make a quick phone call to your landlord or your building manager and they’ll straighten everything out. You don’t have to worry about where you’ll get the money to replace the furnace so you can have heat in the winter time. You also don’t have to worry about anyone suing you because they slipped on your sidewalk, or the fact that the outside of the building needs a new paint job.
Yet another pro is that sometimes you can get a discounted renting price if you sign up for a full 12 month lease as opposed to month to month. And if you are to sign up for a month to month contract, you are free to leave whenever you like (provided you give at least one month’s notice to the landlord so he can find a new tenant), so you are not restricted to any particular area. This is a great benefit when it comes to renting so especially if you like to move around quite a bit or don’t like being confined to one area, renting might be the choice for you. It also helps that you don’t have to worry about having to sell your home before moving; you simply have to give some notice if you want to pick up and leave. Many places to rent out also come fully furnished for an extra fee each month so if furniture is a bit of an issue, this can also be solved by renting a place instead of buying.
Just like there are pros to renting, there are also many cons. One of the biggest cons is that you don’t actually own the place you reside in, so there’s only so much you can do to make it feel “yours.” You can’t paint the walls whatever colour you like, you can’t tear out that big wall between the kitchen and the living room, and you can’t put in new flooring just because the old one is old. In fact, unless something is very, very outdated or dangerous to your living situation, there is a very slim chance that your landlord will replace it just to make you feel more convenient. These types of renovations are expensive and will cut into your landlords profit so if you don’t like something, that’s too bad. Since the place you reside in is also not yours, you can’t add it to your column of assets to build up your financial portfolio and prove to banks that you are responsible (even if you have paid rent on time every month for years).
Another con when it comes to renting a home is that pets are generally not allowed and if you do find something which does allow pets, there is typically a non-refundable pet deposit as well as an extra fee per month which can end up being quite costly over the course of however long you plan on staying. Many places to rent are condominium or apartment buildings, which means there is generally no backyard to take your pets out in anyway. If you enjoy gardening or enjoying the sun on your porch, than renting a home may not be the best choice for you.
Also, if you end up buying your own home, you have a fixed mortgage for many years to come and you know exactly how much you will be paying each month so you can fully prepare yourself for it and budget your income around this expense. However, if you rent a home, there is a distinct possibility that your landlord will raise your rent and only give you a few months’ notice, therefore forcing you to re-adjust your current financial situation and possibly budget differently in order to accommodate this change. As a result of these cons, renting may not be for everyone.
Real Estate – Buying
Buying your own home is quite an accomplishment because it generally takes months of planning, searching and re-adjusting to finally close the deal and move in. However, buying a house may not be the right move for everyone since the pros and cons may not be appropriate for everyone.
The biggest pro to owning your own house is that you own your own house. Nobody can tell you what to do, you can decorate it, renovate it and even tear it apart as you see fit. If you want a pet, you can go ahead and get one. If you want to add in a balcony to your master bedroom, you can go ahead and get that done. Owning your own home is especially useful if you have children and/or plan on settling down somewhere permanently where you don’t have to worry about renewing your lease every year.
Owning your own home is a great investment as well and will look really good on your financial portfolio for banking institutions. Plus if you want to sell your home and you’ve already been paying the mortgage on it for a good few years, you could walk away with a hefty sum after you sell it. Many people see this as a main reason for owning a home since you have to pay for a rented house anyway but you don’t end up actually owning anything; many people consider this “money down the drain.”
The biggest cons when it comes to owning your own home are the overlooked home ownership costs. The first thing you need to consider is if you have good credit to get a mortgage in the first place. Many of you may be trying to build your credit and a mortgage may not be an option for you at this time. The next thing you need to consider is a down payment. 5% is the basic minimum down payment but the more you pay up front, the less you have to pay with interest (even a 5% interest rate can certainly add up over the course of 30 years). However, many people just aren’t in a position to put down $50,000 just like that to buy a house. Then there are added fees once you own a house such as home insurance, property tax, condo fees, brokerage fees, appraisal fees, closing costs, as well as extra costs of maintaining your home.
Many people have little extra money to spend on their house in case the roof or furnace needs replacing, or the kitchen needs re-doing and these things do happen (for more information, check out our 6 Month Emergency Fund feature). Plus once the money is found for this, many people would rather attempt to do it themselves instead of calling a professional to try and save money to time and effort is also required to maintain a home. If you require financial planning guidance be sure to speak with an advisor.
Another con of trying to buy a home is that many of us are not financially able to buy a decent home by ourselves and therefore have to wait until we settle down with someone else so that the household income is high enough to get a decent sized mortgage for a decent sized home. It can be very difficult juggling all the responsibilities of a home all by yourself.