Should I rent or buy a home? It’s a popular question that often results in biased answers based on who’s giving advice. And that leaves you with a whole lot of uncertainty. The most honest answer is that either option could make sense for you, but the one you should choose depends on your financial situation and your lifestyle preferences. Let’s take a factual look at the pros and cons of each.

Pros for Buying

Building equity. As a homeowner, you build equity over time. On most mortgages, a portion of your payment goes to interest on the loan and the remainder pays down the principal. Every dollar you put toward your loan’s principal equals a dollar of equity, which is your actual ownership of the property. Building equity in your home also allows you to tap into a home equity loan, which has a myriad of uses, such as making improvements to the home that will increase its value.

Freedom to make your home as you like it. Home ownership means you actually own your space, so you can make changes to the house as you please. Paint walls any color, build a deck, take down walls, change the cabinets, tiling, and flooring—as long as you follow building codes, the gamut is open. Renters typically don’t have much freedom to change anything and are at the mercy of landlords or management companies to update fixtures, appliances, or paint.

Tax benefits. The most notable tax benefit for home owners is the ability to deduct property taxes and interest paid on the mortgage, reducing your overall tax burden. This can be a considerable tax reduction. The homestead exemption is another benefit to those who qualify. Generally, it protects one’s primary residence from a forced sale to pay off creditors. It was designed to help a surviving spouse with children to help keep their home.

Potential for home value appreciation. As home prices continue to increase, it’s easy to believe they’ll continue to do so—and it’s quite possible they will. You could make a nice profit with the sale of your home, particularly if you live in a desirable location, keep your home well-maintained, and make some savvy improvements. Of course, there’s no guarantee the housing market will stay in your favor. There’s also potential to break even or lose money.

Belonging to a community. People who own homes typically stay in them longer than someone renting. A longer stay encourages people to put down roots, get more involved in their communities, get to know their neighbors, and work together to keep their neighborhoods enjoyable.

Cons for Buying

High upfront costs. Your cost of buying will vary widely, depending on how much money you need as a down payment. Many people put down as much as 20 percent to get a lower interest rate. Others put down considerably less and pay PMI (private mortgage insurance). The home buying process usually requires earnest money, closing costs, home inspection costs, first year of home insurance, and property taxes. This is much higher than renting, which usually only requires one month’s rent plus a security deposit.

Potential for financial loss. As mentioned previously, your home could make a profit upon selling, but it also could lose money. It’s a calculated risk. If homes in your location drag down the value or remain flat, you might need to sell for lower than what you paid.

You pay for maintenance and repairs. Unlike renting where the landlord is responsible for maintaining the property and making repairs, you’re now on your own. You’re responsible for all maintenance, repair, and replacement costs. In general, you can expect to pay an average of 1 percent of the purchase price of the home per year on the upkeep for your home. So if you’re in a $150,000 home, you should estimate at least $1,500 on maintenance and repair each year. You might not spend all of it every year, but some years it will be more, so it’s a good average to uphold.

You pay for all utilities.Since renters sometimes have at least a portion of utilities paid by the landlord, this could be a big change in monthly cost for a homeowner. Consider also that a home is often bigger than an apartment, so it will take more energy to heat and cool the bigger space, thus costing more.

Pros for Renting

More flexibility to move. People who have jobs that frequently change or relocate them to different cities find more flexibility with renting. While a sudden move could force a break in a lease, sometimes landlords allow subletters or they negotiate the lease terms. Conversely, if you own a home and need to sell quickly, the selling process takes time and effort. Also if you’ve only lived in the home a short time, you could be forced to take a loss on your investment.

Less strict credit requirements. Landlords usually use a much lower credit score to determine qualification for a lease agreement. Home buyers need higher scores (usually 680-700) and lower scores make their mortgage interest rates higher.

No maintenance and repair costs. Renters call a landlord or a superintendent to handle problems with kitchen appliances, leaking faucets, broken handles, and faulty windows. And the cost is covered. Of course, you’re dependent on the reliability and responsiveness of that landlord or superintendent.

Some utilities might be included. While homeowners must pay all utilities themselves, some landlords pay for heat, water, or trash removal, or you cover a portion of it as part of the rent.

Cons for Renting

You pay the landlord’s mortgage but you don’t own anything. You don’t build any equity with renting. Every dollar you spend goes to a landlord and helps him or her pay the mortgage on their property.

No tax benefits. You can’t deduct any of your rent from taxes. There are no housing-related tax benefits for renters.

Rent can go up. Once your lease expires, your landlord has the right to increase your rent, and often does. (The exception is if you live in a rent-controlled municipality.) An increase in rent could force you to move to a property with fewer amenities or in an inconvenient location. Homeowners who have fixed rate mortgages always have the same payment every month.

If you’re one who could afford to rent or buy, examine the pros and cons carefully and make an informed decision based on the financials as well as lifestyle preference. Check out an online rent vs. buy calculator which accounts for lost opportunity costs of both buying and renting scenarios.

Platinum Service Realty