When we all fly out of the nest, we usually land in a rental apartment or room and then upgrade somewhere down the line to buying a home or condo. However, sometimes these options make more economic sense depending on your circumstances. Here we will discuss the economic benefits of renting and buying so you can decide how you want to use your money.
When we are young, renting is the best option for housing. You don’t have enough money to buy a house yet, but you don’t want to continue living with your parents, so renting makes the most sense. Though you don’t have to be young to enjoy these options. If you like to move to different cities, take different jobs that relocate you, or want to explore new areas, that would be difficult to do financially if you owned a home. Renting gives individuals the flexibility to leave when life circumstances have changed, or when reconsidering their financial and housing situation annually. Many renters end up saving money since they don’t have to pay for repairs on the property (thanks, Mr. Landlord). Renting in major cities can be a better economic option since housing prices can be extremely unaffordable. Take San Francisco, for example – Curbed reported that in 2018 Trulia found out that it was more economically sound to rent over buying as rent prices at the time were staying flat, and housing prices were rising. To also note, there is the added benefit of not paying property tax.
Buying a home is a much larger financial commitment, but potentially reaps higher economic benefits than renting. When owning a home, there is the opportunity to accrue equity over time, as long as your home value doesn’t depreciate. This is money you in essence made by doing nothing but living in your home for a long period of time. When paying off a mortgage, unlike rent payments, you are helping yourself reach a goal of complete ownership. Each month will get you closer and closer to your goal, whereas when renting you only pay the minimum amount without any option to eventually own the place you live in. You can also make money off your home by renting out part of it or renting out a second home. There are even tax benefits homeowners receive that renters won’t be eligible for unless they make the transition.
If you’re looking to make the switch to becoming a homeowner, make sure to talk to one of our Loan Advisors about how you can make this transition into a reality.