You’ve made your decision. You are planning to live on your own and to have a place for yourself. Now there is one last tough choice to make – buying vs. renting, which one is better? Buying your own house will give you independence, but renting sounds like a cheaper option. Which one should you go for?
Whether you’re going through a divorce, or you simply decided to move away from your landlords, you have probably at least once had a dilemma about which one is better – buying vs. renting? Well, the answer isn’t as simple, and it depends on many things. If you can’t decide what will better suit your lifestyle, read below to see pros and cons for both options.
Things to Consider
Before you make a choice on buying vs. renting, there are a few things that you should take into consideration. In the latest years, becoming a homeowner is considered to be an American dream, however even when you purchase your home there may still be some hardships. The mortgage, the bills, the maintenance expenses… There are arguments both for buying and for renting, and everything depends on your own circumstances. This is why there are several questions that you should ask yourself before you make a decision to stop renting (or to opt for renting a house by yourself) and to purchase your own property.
1. How long do you plan on staying in the area?
This has a huge impact on this decision. If you don’t plan to spend the majority of your life in the place that you are in right now, then buying a house would be a waste of money. The process of buying and selling a home has many hidden expenses that buyers tend to overlook, and these expenses can pile up. For example, a closing cost for a house that’s bought for $315,000 is usually around $6,300, or around 2%. Wasting this much of money for something that is temporary most likely isn’t worth it. On the other hand, if you plan on living in the same part of the city for years to come, renting is a waste of time and it might be better to pay monthly mortgage for around the same price instead.
2. What is the state of the housing market?
People falsely think that home prices always go up, which is why they are biased during the buying vs. renting debate. However, it doesn’t take a recession such as one that happened in 2007 or the one that started this year after the COVID-19 pandemic to reduce the property’s value. If you are ready to take a risk, it is advised to purchase a home while the interest rates are low, and to wait until the market improves. This way, you will gain an important asset and in 10 years you may end up selling your property for way more than you initially paid.
3. Is your rent bigger than your homeowner expenses would be?
When you are paying your mortgage, you are in fact building equity and creating a valuable asset for yourself. Owning a house can increase your long-term net worth. On the contrary, paying your landlord monthly rent is more like wasting money than investing in your future. This seems like enough of an argument to decide on buying vs. renting. However, things aren’t as simple.
When you are a homeowner in Milwaukee, there are some hidden expenses that you might overlook. You won’t just be paying your mortgage every month. There are taxes, insurance and maintenance that you’ll have to pay regularly. And if something bad happens to a house – like a roof gets ruined or there is a flood in the area – you will be the one responsible for all the repairs. And let’s not forget higher interest rates in case your credit is damaged! Despite not being the best option long-term, sometimes renting can be cheaper.
4. Have you considered buying rent-to-own?
If you are planning on staying in the area for a while, but you don’t have enough cash for a down payment and are worried about paying taxes, you can always try to make a deal with your landlord to see if he’s willing to sell you his property via rent-to-own. In other words, landlords may increase your rent a bit, and this money will serve like some sort of a mortgage that will help you pay off his house, so you can become a legal homeowner. This might be a good option if you are renting the same property for a while and don’t feel like moving, but still dream of becoming the legal owner of the property.
Buying vs. Renting – Pros and Cons
The bias for buying vs. renting debate often goes in favor of buying. However, is this really the better option?
Buying a Property
Becoming a homeowner brings you a sense of stability and belonging. However, keep in mind that if you ever decide that you want to move, you might not be able to sell your house right away – unless you are planning on selling to a direct buyer in Milwaukee. When you have already purchased a property, changing your mind about your living location is way more expensive. And let’s not even talk about interest rates, which make your monthly payments a lot more expensive that they would have normally been.
Some other expenses that come with becoming a homeowner include:
- Property taxes
- Homeowners insurance
- Trash pickup
- Pest control
- Tree trimming and pool cleaning
- Flood or earthquake insurance.
Even when you decide to renovate your home, there are no guarantees that this will increase the value of your property. In fact, according to the report made by Remodelling magazine in 2019, homeowners would return 66 cents per every dollar invested in renovation and house improvements.
Renting a property
Renting means that you pay the same amount every month and that you can move without a penalty once your lease ends. When you’re renting, you don’t have to worry about taxes and renovation prices, as your landlord is the one responsible for making most repairs. However, this also means that your landlord is legally allowed to ask you to leave his property, in case he sells it, decides to turn it into condos or to raise a rent for a lot more than you can afford.
Still, renting is not ‘throwing away money’. You need a place to live, and that costs, one way or another. Secondly, although you are not building equity with monthly rent, the truth is that most of the money you’d spend on your own house wouldn’t be building you equity anyway. So, in short, even though living ‘at the mercy’ of your lender, this option is still much cheaper and it’s better if you are a restless soul who doesn’t plan to stick in one place for far too long.
The discussion about buying vs. renting is a long-lasting one, although a bit pointless. Everyone is living in different circumstances and both options have their pros and cons that you should carefully weigh. If you feel like renting works better for you – ignore everyone who tells you otherwise. And if you dream about having a place on your own – go for it and get that loan! The only important thing is to calculate your savings and see what you can afford. In the end, the decision about how you’ll lead your life is also an emotional one. Only you can make it.