Owning vs. Renting: How Do They Compare?

The real estate market is showing major signs of a big slowdown right now, with interest rates having gone up enormously over 2022. Even though it’s more expensive than ever to buy a home, rent prices are also high, so it’s putting people in a difficult situation. There’s not necessarily a cheap option right now when deciding between renting and buying. 

There are certain costs that come with homeownership that you don’t have to worry about if you’re a renter, so that’s one thing to think about. For example, homeowners insurance premiums, on average nationally, are around $1,211. Some states are lower than this. Home insurance quotes in Illinois, as one example, average around $1,056, but even when these costs are lower, you still have to add them all in as you compare whether buying or renting is the better financial decision for you. 

Below are some of the particular considerations to keep in mind when it comes to buying and owning versus renting and how much each might cost. 

Renting

When you rent a home, there’s the misconception that you’re throwing money away every month, but that’s not always true. You do have to live somewhere, and you can’t necessarily think about putting a roof over your head as throwing away money. You aren’t building equity when you’re making rent, but at the same time, not all home ownership costs go toward equity. 

When you rent, you know how much your costs for housing are going to be every month, so you can plan ahead. 

When you rent, you also have the flexibility to move when your lease ends, and if you aren’t sure where you’re ultimately going to settle down, that can be a big plus. 

Own

When you buy a home, you do have benefits that are unique, and you can’t get with renting. 

There’s a sense of stability, and there’s the mental benefit of feeling like you have consistency in your living environment. 

Homeownership costs are often higher than renting, even if you have a mortgage payment that’s lower. 

If you’re going to buy, expenses that you’ll have to factor into your budget that you don’t have to pay as a renter include property taxes, trash pickup, service for water and sewer, lawn care, homeowners insurance, and more. Depending on where you live, you might also need flood insurance, which could be required by your lender. You might even need earthquake insurance. 

In the earliest years of your mortgage, interest might be taking up all of your monthly payments. 

For a lot of people, it can be as long as 13 years after buying for their monthly payment to start going toward their principal if they have a 30-year home loan. 

Then, in addition to all these costs that you don’t have to worry about as a renter, you also have that unexpected worry about repairs and maintenance. If you get something as seemingly simple as a roof leak, it can cost $10,000 or more to replace your roof. It may not even be covered by your homeowner’s insurance. 

On the flip side, homeownership can be a powerful way to build wealth. 

Financial Considerations

There are some financial benefits that come with homeownership, such as the ability to write off part of your mortgage as a tax deduction. 

With renting, you don’t have to cover maintenance expenses, but that doesn’t mean you’re automatically shielded from any additional costs. 

Your landlord can also decide not to renew your lease or to raise your rent by a significant amount when your lease is up for renewal.

Also, while you might not have to pay for repairs and maintenance, it can take landlords weeks to respond to concerns and issues. You’re not in control of how the situation is handled. 

The general consensus is that homeownership is a good investment, but as is true with any investment, it depends on the performance of that specific investment. The economy, location, environmental concerns, and so many other things play a role in just how good of an investment your home is. 

Lifestyle

One thing that people tend to underestimate the importance of when they’re deciding between renting and buying is their lifestyle. 

Increasingly, people can work remotely from anywhere, so maybe you aren’t sure where you want to end up buying a home. Renting can give you a chance to try different locations before settling on one, and you have a lot more flexibility. 

If you think you’re going to stay in your job for the foreseeable future, then you might want the stability of buying. 

If you’re at a time in your life where you’re planning to have children, or you already have them, you might want to put roots down somewhere with good schools and family-friendly amenities. When you have a family, it can be emotionally and logistically draining to move every time a lease ends. 

On the other end of the same spectrum are empty nesters. Maybe you’re at a point in your life where you don’t know exactly what you want your life to be like in this next phase, so before you invest in another home, you could try out different locations or living environments. 

When talking about lifestyle, you also have to consider how important it is to you to make your home your own. You might not care much about this, but for a lot of people, customizing their homes to their exact needs and specifications is a good reason to buy instead of renting. 

Maybe you’re someone who likes to enjoy your free time, and you don’t want to put that towards home maintenance. When you own a home, you can count a pretty good chunk of your time as going toward upkeep, chores, and general maintenance. 

Are You Ready to Make the Investment?

Buying a home is probably going to end up being the biggest investment you ever make, and there are a lot of factors that play a role in making such an investment. 

Too often, people try to oversimplify the renting versus buying debate and say that buying is always better when in reality, it’s something that’s very much dependent on the person, their financial situation, and their lifestyle.