Renting vs Owning a Home

When you consider renting vs owning a home, you need to look at the pros and cons. Let's look at some of these to help us better understand when one approach might make more sense than another in terms of our personal finances.

I've rented, and I've owned, and each has it's strong points. Much of our "knee jerk" reactions to the two choices is based on what we're accustomed to doing. My natural first choice is to own, mainly because it's what my family has done, and done quite successfully. I've only rented when I had to, but renting a home has distinct benefits, so let's not overlook them.

Okay, I'm ready to dive into the discussion of renting vs owning a home. Let me focus on the pros of each situation, and touch lightly on the cons associated with the alternative. That ought to keep the discussion on the positive side.

Renting a Home

One of the distinct advantages of renting vs owning a home is that you don't own it. No real estate taxes, no homeowners insurance, little or no liability to be concerned about, and you have a fair degree of flexibility. If you don't like the neighborhood, then find another rental somewhere else.

Often, renting a home is a good alternative to owning one when interest rates are crazy high like they were in the 1980's. The idea is to rent for a while until markets change - and they will change given enough time. Just sit tight and let others get beat up in the marketplace of high interest payments, then jump back into home ownership when interest rates return to something that's much more reasonable.

Remember that the rate of interest is often much more important than the cost of the home. It's the interest rates that have so much to do with your monthly payment, so renting vs owning a home is one way to dodge exceptionally high interest rates.

With respect to flexibility, the big advantage to renting is that it's one way to get around costs that are nearly unavoidable when buying a home - costs like loan fees. If you're not certain how long you're going to be in a particular area, renting gives you the flexibility of packing up and leaving without having to sell your home.

If you're considering renting vs owning a home, and you have the luxury of looking around a bit, you might find someone with a home that has been in the family for a while and now would like to rent out the house that has long been paid for. This is where you might find someone with little interest in trying to make a mortgage payment and profit, but more interest in getting reasonable return on investment and protection of their investment by being choosy about who they rent to.

Owning a Home

I naturally favor owning a home simply because it's mine. One does run the risk of the home being condemned and seized by government, but that is rare, much more rare than someone terminating your lease or rental agreement if you're not the owner.

With a home, you have an investment that can be rolled over from one dwelling to the next until you've built up sufficient equity to buy a place outright. It's been done. I've seen my family do it.

If you delay getting into the homeowners market, you can have a tough time building equity and then run the risk of getting "behind the power curve" and having to rent simply because you don't have a large investment in the home of your choice.

You can also feel free to maintain and improve your own home, usually without permission from others, and this builds on and preserves your investment. You'll want to be aware of real estate tax implications of home improvements. It's one of the "fleas that come with the dog."

One of the largest benefits of owning a home is simply that you're living inside your own investment. In other words, the investment in real estate is also providing you shelter. Since you're paying interest on a mortgage, it's a good idea to live there so you can deduct the interest payments off of your federal income taxes.

Renting vs Owning a Home - wrap up

Generally I favor owning instead of renting, but renting is a good idea to avoid an uncertain or high interest rate marketplace. It's also a good way to land somewhere for a while until you get your feet on the ground and determine when and where you'd like to buy.

Be sure, when you buy a home that you're mindful of location and potential for resale. Those are the two factors that will help you the most when it comes to building equity and turning your asset into cash should the need arise.

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