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Buying Vs. Renting

When you decide to look for a new home, the many considerations you are faced with can be daunting. From location to financial implications, millions of people struggle each year to make the decision that is best for them and their future. However, before even choosing a home, one of the first and most important questions you have to answer is whether you want to rent or to buy. There is no straightforward solution, as each individual’s response must depend on their own unique circumstances. But have no fear! This comprehensive breakdown should give you all the guidance you need to make an informed decision.

Renting

Renting a home has plenty of advantages as well as several shortcomings. Arguably the biggest benefit to renting is its intrinsic flexibility. When you rent, you can move without penalty at the end of your lease term, which is typically only a year in length. This makes renting a good option if you plan on moving again within a couple of years. 

However, with added flexibility comes less security. When you rent, you are effectively powerless if your landlord decides to sell the property or raise your rent at the end of your lease term. Depending on the city you live in, rent control laws may protect you from substantial rent hikes, but it is nonetheless a real concern in most areas.

Financially, renting a home may be viewed as less of a burden than buying one. Monthly expenses are generally lower and more predictable, and your landlord would typically be responsible for maintenance and repairs. Still, many see renting as “throwing money away.” This is true to the extent that renting offers little long-term financial incentive beyond saving money – there is no equity, tax deduction, or rising property value to benefit from down the line. Nevertheless, you are still getting value in having a place to live, which always costs money regardless.

Buying

Owning a home comes with a wealth of benefits as well as a number of complications. Purchasing a home can certainly be a worthwhile financial investment, but you must first ensure that you have the financial stability to do so. If you are thinking about buying a home, it is first important to consider whether you are out of debt. It is best to have your student loan(s) or any consumer debt fully paid off so that they do not stack with mortgage payments.

Speaking of mortgage payments, they are typically similar to or lower than rent but ultimately more costly over time due to the interest. Because of the commitment to paying down a mortgage over likely at least a decade, it is essential to have an emergency savings buffer so that you could afford to continue paying your monthly expenses for three to six months at minimum should you unfortunately find yourself out of work and looking for a job. To that point, it is recommended that your total mortgage payment be no more than 25% of your monthly take-home income.

Aside from a mortgage, additional homeowner expenses include property taxes, homeowner’s insurance, natural disaster insurance, utilities, and potential renovation and maintenance costs. That being said, it is also important to note that many homeowner expenses such as property taxes and mortgage payments are tax deductible, meaning you will surely recoup some of the money you have spent. Furthermore, you can cash in on appreciation, which means that the likely increase in your home’s value over time will allow you to sell it for a profit down the road, should you choose to. Finally, unlike rent payments, mortgage payments have a higher purpose in moving you closer towards ownership. In that sense, there is an undeniable ultimate payoff with buying that is absent when it comes to renting.

Next, location is a consideration that holds increased importance when you are thinking of buying a home. Keep in mind, you aren’t just investing in the property, you are investing in the area. How much or whether at all your home will appreciate over time is very much dependent on the quality of the neighborhood, city, and surrounding homes. Moreover, it is highly essential to choose a home that is in a location you would actually like to live in for an extended period of time. Buying a home is not just a financial commitment, it’s a commitment of your time. If you’re living in an undesirable location, it is much less feasible to sell your home a few years after purchasing it than it would be to terminate or simply not renew a lease on a rental property.

Lastly, buying a home comes with many intangible benefits that renting does not. Homeownership offers a greater sense of stability as well as belonging to a community. There is also a great sense of pride in owning your own home that cannot be measured. Ultimately, for many, buying a home can be seen as a greater investment with a greater reward – financially and sentimentally.

The Verdict

In the end, the decision whether to rent or to buy very much depends on where you are at in life and what your plans are for the future. Renting offers greater flexibility while buying comes with more stability, conditioned on the fact that you are going into it with some level of financial security.

In the short term, renting is often a cheaper option with fewer and more predictable expenses. Buying, however, can be a valuable long-term investment with multiple financial rewards down the line.

Finally, becoming a homeowner offers greater freedoms and a wealth of intangible benefits that are virtually nonexistant when you are at the mercy of a landlord.

All in all, if you have the financial resources and are willing to make a lasting commitment to a property and location, buying seems like the superior option.

Thinking about moving to the Bay Area? Please don’t hesitate to reach out to me! Having grown up in Northern California, I know all there is to know about the region and would love to help you find the perfect home you’re looking for.

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