Renting vs Buying

There’s always a strong debate in the real estate industry about the “rent or buy” decision. Many people often find it difficult to decide on which option to pursue. But it shouldn’t be so because each of these options has its pros and cons, factors to consider and costs to bear.

Also, in this situation, people’s choices would differ based on their circumstances. What will be suitable for Mr A, will not be the same for Mr B. That’s why we advocate for thorough research before going ahead with either option. You may decide to buy a house and realize in the long run that renting would’ve been the best for you and vice versa.

So, if you’re at a crossroad now, simply analyse the information we have here and decide on what to do.

Things To Consider Before The “Buy Or Rent” Decision

1.    Your level of income

This is one of the factors that can guide your decision on whether to rent or own a house. We all know that house rentals are cheaper than properties for sale. While the former may not be capital intensive, the latter requires a huge amount of money. So, at the time when you need to choose between these two options, check your pockets and determine what you can afford.

2.    Do you need flexibility or stability

This is another factor to consider seriously. Renting a house offers more flexibility while buying a house gives you roots. At this point in your life, what do you want? Are you in a place where you need to build a stable home? Or would renting be the best option for you? Consider these two situations, and you’ll know what to do.

3.    What goals are you pursuing?

Before buying or renting, consider the goals you’re planning to pursue. Sometimes, your family goals, financial and career goals will help to point you in the right direction. Any decision that will not align with your goals might be detrimental in the long run. Therefore, check very well before you tie down your finances to buying a house or enter into a contract on a rental property.

4.    What is the duration of your stay

Rental properties are for a period while owning a house is indefinite unless you decide to sell it off. So, you need to decide how long you’re going to live in the neighbourhood, state or country. If you are in for the long haul and can afford it, buying a property might be good for you. But, if you’re planning to stay a short while, renting is the best option.

5.    Costs of Maintenance and repairs.

If you rent a house, the costs for both maintenance and repairs will be the responsibility of the landlord. But if you’re the house owner, it’ll fall on you. So, consider if you’re up for it or not before deciding on what to do.

After considering the above factors, go ahead and discover more about buying/renting a property. Like we said earlier, these options have pros and cons. So, we are going to discuss each option in full details to further guide your choice.

   Owning a house

Almost everybody dreams of becoming the sole owner of their home. It gives you a sense of accomplishment to boldly tell others that you own a property. Apart from seeing your name on the house deed, there’re many other things you’ll benefit as the owner

Advantages of owning a house

1.    It is a long term investment

Buying a property is one way of investing in real estate. The good thing about this type of investment is that it ensures high returns depending on how you handle it. You already know that buying a house can drain your savings, but if the value of the house increases over time, you’ll make more than you spent as profit. Our advice though is that you consult a real estate agent to guide your quest. They may know one or two things about property values in one area or the other.

2.    Ownership is more secure

This is one of the advantages of being a homeowner. Instead of facing the embarrassment and insecurity of eviction, you can live without fear. You can indeed lose your home if the bank decides to foreclose on it. But it’s usually on rare occasions. So, buying a house is more secure than renting. What if you wake up one morning and hear that the landlord has sold the property. What will you do except to pack up and go?  Yes! They may give notice, but what if they didn’t have the time to do so? That’s why owning a house will ensure you of security.

3.    You’ll build equity

If you own a house today, you can look forward to the equity it’ll accumulate in years to come. Since you are paying a fixed mortgage on the property you own, as the lien gets lower, your equity gets higher. That’s why we advise you to target properties in areas known for favourable market conditions. With that, you can be sure of a rise in value leading to higher equity.

4.    Fixed monthly payments

One of the advantages of owning a property is the nature of the payments you make over the years. Many people who buy properties often opt for the fixed rate mortgage product where they can pay a certain amount of money every month without alterations. If you’re someone who earns a salary, you can make plans around the balance after your mortgage payments. Also, you can predict your expenses every month since you already know the amount to pay as a mortgage.

This is unlike renting a property where you have to sign a new agreement every year with different rent amounts.

5.    Owning a house boosts net worth

If you’re interested in building your net worth, invest in buying instead of renting. Many people who want an easier and sure-fire way of increasing their net worth usually invest in properties. We’re not saying that home ownership is the only to do it. However, it can become a store of wealth for you, and as time passes, it’ll build your worth.

6.    It provides stability

Owning a house can help you to stabilize your life. Instead of moving from one place to another as renters do, you can stay in one location and stabilize there. We know that some people may pay rent in one property for five to fifteen years.  But in the end, they’ll still move because they’re not the owners of the home.

On the other hand, when you buy a house in a location, it means you are planning to stay for a very long time. You’ll likely make plans to sell in the future, but this may be during retirement. So, if you would love to enjoy some stability in your life, house ownership will give it to you.

7.    House ownership increases your credit score

One of the things which lenders analyse before trusting you with their money is your credit score. A faster method of improving this score for future transactions is to own a house. Mortgage payments usually run for fifteen to thirty years. If the lenders discover that there’s a mortgage repayment on your credit history, they’ll consider you responsible. More so, if you’re someone who makes his monthly payments as at when due, you’re already their favourite.

8.    You can take another mortgage on the house

Many people usually take more loans on their house even without completing the first mortgage. Homeowners who’re faithfully paying off their first mortgage can be granted another loan when they’re in dire need of funds. As long as the house is accumulating equity, the lenders don’t bat an eye in granting loan requests on it. However, if you’re renting a property, this opportunity will not be available for you. But we advise that you consider this option only when others have failed. The truth is that if you fail to live up to your end of the bargain, the bank can claim your house and your past efforts will be a waste.

9.    You can collect rent

Apart from selling off and making higher returns, you can decide to share the house with others and collect rents. Many homeowners use the rents they collect from their tenants to pay off their mortgage. If you buy a large property, nothing is stopping you from dividing it into two and renting out a part of it. You can live in one unit and collect rents until you complete your mortgage payment.

However, renting can be troublesome, but if you handle it well, the advantages will outweigh the disadvantages.

10.    Owning a house ensures more privacy

This is one benefit of owning a house that you need to remember when making the “own or buy” decision. If you are living in your property, there will be one hundred per cent privacy for you and your family. You can avoid the noise, inconvenience and disagreements of living in rented apartments, by investing in a property.

Sometimes when we listen to many renters, we’re usually shocked at what they have to bear. Neighbours can make you uncomfortable, or your landlord can invade the little privacy you manage to create in rented spaces. But if you have your place, no one will dare to trespass or make you uncomfortable.

Disadvantages of owning a house

Although you have lots to enjoy as a homeowner, there’re still some things to dislike about it.

1.    It comes with additional costs

Did you know that the cost of owning a house goes beyond the monthly mortgage payments you make? There’re other costs such as maintenance cost, taxes, repair costs etc. Apart from these, you should expect others such as closing costs & moving expenses when you decide to sell off.

2.    You’ll pay higher on mortgage

We’ve discovered that rent is usually cheaper than the amount you pay every month on your mortgage. The only difference is that mortgage payments are fixed for the number of years it runs. But still, the amount to spend every month is higher than when you pay rent.

3.    The value may fall

In years past, people were very eager to buy properties as a way of accumulating equity. This time, there’s always the risk that the house may lose value instead of gaining as the owner expects. This means that homeowners may lose their investments if the market conditions become unfavourable

4.    The risk of foreclosure

What if you take out a second mortgage and fails to pay? The bank will repossess your home, and all your efforts become a waste. This is another disadvantage of buying a house which we want to point out. Being a landlord usually gives that opportunity for the second mortgage, but it is risky to take it. So, think hard before deciding on what to do.

            Renting your home

Just like we’ve discussed the advantages of owning a home, let’s consider some advantages and disadvantages of paying rents instead of paying a mortgage.

Advantages of renting

1.    Flexibility

One advantage you’ll enjoy as a renter over a landlord is that you can move from one place to another without obstructions. For instance, if you are working under an organization, the chances are that you might be sent to another location unexpectedly. In such a situation, you’re not bound by any commitment, and as such, you can pack up and go. Also, you can live in some of the luxurious locations anywhere in the world without having to save for many years.

2.    No additional costs

In some tenancy agreement, the landlord bears the responsibility of maintaining and repairing the house whenever there’s damage. Sometimes, the only cost a tenant bears is to cover minor damages that he/she caused. So at the end of the day, you may not spend anything at all if you’re careful.

3.    Rent is not capital intensive

Paying rent is not something that requires a huge capital outlay like buying a home. When you’re buying a home, no matter how low you get as the percentage for the down payment, it’ll still make a dent on your savings. But with rent, you can pay for one or two years and will still have enough to invest in other opportunities.

4.    Renters move easily

A renter can leave the property at any time he/she wants, but a landlord cannot do so.

Once a tenant decides to move, he/she won’t have to look for someone to continue with the lease or wait for a buyer who’ll purchase the house. All the tenant needs to do is to pack up and move to the next location.

Disadvantages of renting a home

1.    You can’t alter the property

Once you’ve signed the agreement, you can’t make changes on the property without consulting the landlord. Even simple renovations have to pass through the owner’s table before you can go ahead with it. So, if the landlord disapproves, you’ll live in the house as it is for the number of years you’ve paid for no matter how long.

2.    No Equity/returns

Another disadvantage is that rents are not investments. You’re helping the landlord to pay off his mortgage. As such, you are not going to gain returns on the property. We’ve already discussed equity as an advantage you’ll enjoy for buying a home and paying off the mortgage. But when it comes to renting, all the money you pay are gone and will yield nothing for you in the future.

3.    Privacy and security issues

Being a tenant exposes you to all manner of people and situations. Also, the risk of losing your home whenever the landlord decides can keep you restless and unproductive. Even if you signed a lease on the property, the owner might decide not to renew it when the term expires. So, renting keeps, you unprotected, exposed and insecure.

4.    Rent amount increases regularly

This is another issue that leaves you uncertain and unsettled. You may be facing an increase in rent every year, no matter what your income is at any time. Whereas mortgage payments are fixed, rents fluctuate depending on the prevailing market condition. So, you may be evicted for failure to pay if the increase gets much higher than what you can afford.

Conclusion

To summarize this topic, we’ll like to encourage you to choose the options that are suitable for you and nothing else. If you can bear the costs of owning a home at this point in your life, go for it. But if you’re not financially stable or you have no need for stability, rent. Moreover, owning a home can help you to build equity and also serve as a solid investment. So, if you would love to bear the pains now and benefit tomorrow, invest in buying a home.

Each option has its peculiarities and situations for which they’re suitable. So, don’t look at what others are doing but check your plans, budget, income, situation and abilities before you decide on what to do.