Your home is your most valuable asset, or is it? Owning a home used to be viewed as the most essential financial decision that anyone could make. Homes were considered the most viable way to store wealth. They played a vital role in most people’s retirement plans.
People in the past rarely asked themselves if they should rent or buy their homes. Renting was simply a temporary arrangement as people worked toward eventually owning their own homes. That is why older generations attached so much emotion to homeownership.
But times are changing, and for many young people, owning a home is not everything it is cracked up to be. Citizens, particularly Millennials, are forgoing the stability that comes with owning your own home for the freedom and abundance of options that come with renting.
But what is the better strategy for your financial future? Does it make sense to rent your home, or is it more beneficial to buy your own house? Given the impact of your choice on your ability to achieve financial freedom, this is not a question you should take lightly.
This post will highlight the pros and cons of renting a home versus buying one. By comparing the stated benefits of each option and weighing them against your long-term objectives, you can make a decision that will help you reach your highest financial goals.
Buying your own home
Pros
- Build equity: By making the monthly mortgage payments on your home, you grow your equity in the home. Equity also grows as the house increases in value, allowing you to make a profit when you sell the home.
- Increased borrowing power: It is possible to borrow on your home equity and invest that money in a rental property or other investment. Owning a home increases your access to funding.
- Long-term planning and stability: It is easier to plan when you own your home because you know where you will be for the foreseeable future. Homeownership promotes financial stability.
- Customize your home: Home ownership gives you the freedom to design your space. You are not limited to a landlord’s design, but you can renovate the house to suit your lifestyle.
Cons
- Large upfront cost: The biggest obstacle to owning your home is the down payment required by lenders. That can get as high as 15% of the market value of the home, and it takes time to save that much money.
- Unpredictable maintenance cost: You are never sure how much you will spend to maintain your home every month. Unexpected problems in the home can take a toll on your finances.
- Risk of losing value: Events in your local housing market or the larger economy can hurt the value of your property. That can impact your ability to recoup your investment in the property.
- Minimal flexibility: Being a homeowner means you are stuck in one location. It is hard to move because of how much money you invested in the home. It also takes time to find a buyer.
Renting your home
Pros
- More affordable: The best thing about renting your home is you can find a rental property at almost any price point. No need for expensive upfront payments; just pay the monthly rent.
- Move any time you want: A rented home affords you the greatest level of mobility. You can leave your home or move to another city without worrying about stock investments.
- Access to Amenities: Being a renter means you can live in a home or a location with amenities that you would normally not afford if you were going to purchase your own home.
- Cash for other investments: Renting your home means your monthly housing costs are predictable, and you can afford to put aside substantial cash for profitable investments.
Cons
- No freedom to customize: As a tenant, you are stuck with the design of your rented home, since the majority of landlords do not like renters to alter the appearance of their rental property.
- No control over the rent: You do not influence how much rent your landlord charges. The owner may increase the rent beyond your reach, instantly raising your housing costs.
- You may be forced to move: If the owner decides to sell or renovate their property, you will be forced to move. This element of instability can upset your well-laid-out plans
- No long-term financial pay-off: There is no long-term pay-off for the rent you pay. While you are helping the landlord pay off their mortgage, you do not reap any future benefits.
What is the right option for you?
There is no right or wrong option; everything depends on your current situation and long-term goals. Given the impact of housing on your emotional and financial well-being, you want to give serious thought to this decision. If you need help making a choice that aligns with your needs, it might be a good idea to talk to an expert.
