Renting v. Buying a House
By Attorney Jacquelyn M. Yeakle
Most of us have debated whether renting or buying a house made the most sense throughout different phases of our lives. An ambitious new graduate may prefer renting an apartment to have more flexibility to chase after that dream job. First-time parents may want to buy a house in their ideal school district and build equity for the next 18+ years. Empty nesters may want to downsize and no longer be responsible for home repairs and property maintenance. Whatever your situation may be, there are pros and cons to consider when you are deciding whether to rent or buy a house:
Renting “Pros”
1. An easier, quicker and cheaper process. Once you pick your rental residence, you sign a lease. There is no settlement or closing costs. At the end of your lease, you simply move out.
2. Landlord is responsible for repairs and property maintenance. If, for example, one of your appliances breaks, your landlord will fix it and pay for the expense. Your landlord is also typically responsible for snow removal and lawn cutting services.
3. Greater flexibility to move. If you need to terminate your lease early, you may need to pay early termination fees, but you will not have to hire a real estate agent, list your house, find a buyer, attend a settlement, pay a commission fee, etc.
Renting “Cons”
1. No home equity. You do not build any home equity when you rent. Think of home equity as an asset and a strategy to build wealth.
2. Rules and lack of privacy. You must follow rules established by your landlord. Your landlord may not allow pets, allow you to paint the walls, allow extended visits by guests, etc. Your landlord may also enter your rental residence after reasonable notice.
3. Yearly increase in rent. If you continue to renew your lease year after year, your rent may increase each year. Instead, you could be paying a fixed monthly mortgage payment and building home equity at a similar monthly payment as your rent.
Buying “Pros”
1. Home equity. You build home equity when you make your monthly mortgage payments and when the value of your house increases. Home equity is the current value of your house minus your outstanding mortgage balance.
2. No rules, unless HOA, and more privacy. You may have pets, paint the walls, decorate or renovate your house as you desire, have guests for an extended period of time, etc. You also have more privacy in your house as no one may enter without your permission.
3. Rate of return. The longer you own your house, typically the larger return you will receive when you sell it. Treat buying a house as an investment, especially if you plan on owning it for several years prior to selling it.
Buying “Cons”
1. A more tedious, time-consuming and expensive process. You will likely need to find a real estate agent and lender. You will take time and spend money to gather information, attend settlement, pay closing costs, etc.
2. You are responsible for all home repairs and property maintenance, as well as property taxes, school taxes and homeowners’ insurance. Also, if your house is part of a homeowners’ association (HOA), you must pay those fees and follow its rules, as well as all laws and ordinances.
3. Foreclosure. If you do not make your monthly mortgage payments, then your lender can force the sale of your home to pay the balance of your mortgage.
A general rule to follow: If you plan on living in the same area for at least five years, buying a house is generally the more advantageous option. After five years, the increase of the home equity will likely allow you to make money on the sale of your house.
Wherever you are in life and whichever option is best for you, we can gladly assist. If renting is the best option for you, we can draft or review a lease. If buying is the best option, we can guide you through the homebuying process and provide title insurance.
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