The renting versus buying dilemma is one my friends have started to face since they've begun leaving Manhattan and escaping to the suburbs (I'm still not there yet, but when I think about how much money I "throw away" each year on rent, it's actually cringe-worthy). But, maybe it's true when they say the grass is always greener. Buying doesn't come without its own set of problems, considering both sets of my friends who recently purchased homes faced movers damaging their patio, gas leaks, and even a broken washing machine within the first week. (They've confided in me that their bank accounts are still recovering.)
Since we're no experts on the topics, we decided to tap Scott McGillivray, a real estate/renovation expert and TV host, to get his professional take. "Neither renting or buying is intrinsically right or wrong," he says. "It basically comes down to your goals and your lifestyle." That being said, he encourages getting into the real estate market once you feel financially prepared to do so. And what if you're worried about going all in? McGillivray suggests trying a practice mortgage in which for one year while you're renting, you put aside the amount you'd have to pay as a homeowner (mortgage, property tax, potential repairs). This gives you a realistic idea of how your lifestyle and budget will be affected if you buy.
"If you can manage, go for it," the expert says. "And the bonus is that at the end you'll have some extra cash for a down payment." Since renting versus buying is no small debate, we asked McGillivray to break down all the pros and cons for each. Keep reading to get the full scoop.
Flexibility to Move: "You're not tied down with a mortgage and can move as often as you want." Not having to commit to a neighborhood (or region) means you can try things out until you find the right fit. Or, if something happens in the neighborhood you're not thrilled with, it's easy to just move on.
Maintenance/Repairs Are Included: Oven breaks or there's a leak? Call the landlord and they're required to make the fix for you, free of charge. "You won't need an emergency repair fund."
Possibility for Better Location: If you're looking to live in a certain neighborhood but can't afford to buy there, renting can be more affordable. And if you have kids, this can mean a better school system, transportation, and more.
Extra Money to Invest: Depending on the rental market and where you live, you may have extra money to invest outside of your humble abode. "For many homeowners, there isn't a lot of extra money left over."
No Equity Built: "The money you pay each month will never be seen by you again." Even though you're spending money, you still have no ownership over your spot.
Rent Can Fluctuate: "With mortgages, you can sometimes refinance to make things more manageable, but not so with rent." Anyone who rents understands that it's rare for your rental rate not to increase every year.
Limited Ability to Decorate: Many rental buildings are strict, meaning you can't even paint the walls a different color without approval (some buildings don't even let you put a doormat outside your door for sake of uniformity). When you buy, you'll have free rein to decorate and design everything from pendant lights to paint colors to carpeting or wood paneling.
No Return on Investment: "When you own a home, you can make value-adding improvements that will pay off when you sell." That's not the case for rentals, which is why you should be careful about spending too much on things like blinds and other custom pieces you won't be able to take with you when you move out.
Landlord Issues Exist: "If you have to rely on someone who's irresponsible, it can be a nightmare." And while you can expect repairs to be made, it's often not as quick of a turnaround when you're not paying. (Pro tip: Try to rent from a reputable management company and ask friends and family for referrals.)
"If you're in a temporary position or planning on moving in the short term, or if you have to take on unrealistic interest rates in order to buy, renting can be the smarter option."
Equity is Built: When you buy a house or condo, you immediately start to build equity. This is different from renting in that you never see that money again once it's paid out to the landlord.
Renovation Opportunities: "If there's something you don't like, you can simply change it—although you can be somewhat limited in apartments and condos." Still, your ability to customize and personalize your home is greater when you own it.
Chance to Increase Value: Now when you make improvements and changes, you are actually adding to the value of your home and investment. "This means more money when you sell, and/or the opportunity to refinance and pull money out of the home for other reasons."
Ability to Be the Boss: "With your own home you can pretty much do what you want." Want to have pets or build a fence around your yard? Rentals require that you follow certain rules that can limit life choices; buying does not.
Tax Credits Exist: Ask your accountant about available tax credits that can help offset some of the costs when you buy. Although they vary and you may not qualify for all, you may get a tax break.
Long-Term Financial Commitment: You'll have to be patient to see your return. "While you will build equity over time, it will take many years to see the financial benefit."
Commitment to Location: "You can change pretty much everything about a house but its location." If you don't like your neighbors or a noisy bar or restaurant opens next door, you can't just move (without a significant expense).
Large Down Payment: Remember you'll need to put down a significant down payment (20% without paying a penalty). This can be a challenge for many people starting out.
Costly Maintenance and Repairs: Repairs are not free when you own and there's no landlord to send someone to fix a problem. You'll need to create an emergency fund for when the oven breaks or there's a leak in the roof (or something similar).
According to McGillivray, "If you do it right, it can be the best investment you ever make. And if you're looking for long-term financial gains or stability, this is typically the way to go."
Now that you've learned all about renting versus buying, you'll be able to make the decision that feels best for you.