Is It Better to Rent or Buy?

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You have to decide for yourself if it’s better to rent or buy. Both have pros and cons.

Buying a house gives you privacy, ownership, and home equity, but repairs, taxes, interest, and insurance can add up to a lot of money.

Renting an apartment is less work and gives you more freedom, but you might have to deal with rising rent, noisy neighbors, or a cranky landlord.

There’s no question that owning a home gives you a lot of satisfaction and pride, but it also adds stress and costs. So, you need to be sure you’re ready before you buy a house.

Why rent when you can buy

There are many benefits to owning your home. Although buying isn’t for everyone or necessary at every point of a person’s life, there are several advantages to being a homeowner that remains stable over time, some of which are a sense of pride and accomplishment that comes with owning your own home and of course the many tax advantages.

There are also several other reasons why you should buy instead of renting:

1. Continuous rent increase

The cost of rent continues to increase at a fast pace throughout the country.  What this means is that it is much better to buy than rent a home because paying a monthly mortgage is cheaper. 

2. Investment 

Renting a place only makes you pay your landlord and have nothing of your own. Homeownership is a great long-term investment because it’s kind of like forced savings.

When you purchase a home with a 20-year mortgage and make payments monthly, at the end of the day, you will have a home to call your own which you can also choose to sell. If you’ve instead been in a rental property for 20 years, you can’t lay claim to any of your monthly payments. 

3. Privacy

Being in a rental property means you either stay in a condo or an apartment building which translates to sharing floors, ceilings, or walls with neighbors who may be noisy or nosy.

Either way, you have to perform a certain way so as not to upset your neighbors. Homeownership is much better if you enjoy your solitude or wish to behave anyhow you like without fear of upsetting your neighbors. 

4. Low-interest rates

Buying is a much better option than renting due to the low-interest rates now. What may appear like a small difference in your mortgage rate can make a great difference in your monthly payment.

Interest rates are still quite low. As such now is a great time historically to buy a home and take advantage of the low rates. Getting a low 20-year mortgage today could end up saving you hundreds of dollars monthly for years to come.  

When looking at the advantages buying has over renting, you will discover that rental rates are quite higher than a mortgage payment and you do not get the benefit of an annual tax deduction. 

5. Customization

Another reason why you should buy instead of renting is that you get to remodel your place to your taste. Whether you want to carry out a major remodeling in any part of your house or just want to change the paint color,  you have all the free will you need.

As a homeowner, you can make your place more homely by modifying it as you wish while not breaking any building rules.

With renting,  your options are limited as to what you can modify, and even when you can, you have to seek the support of your landlord which always comes with some conditions, unlike when you own your place.

Factors to Consider When Deciding Whether to Rent or Buy

1. Finances

Consider if your finances can afford you a home. Note that buying a home would have you making monthly mortgage payments. You also require a sizable down payment and a good credit score if you want to get a loan.

There are other housing costs you will bear in the process of buying a home, so make sure to carry out financial research in buying a home.

2. Needs

Before you make that down payment for a home, it’s expedient you take your needs and preferences into account. Homeownership affords a lot of benefits, but it also comes with great responsibilities.

As a homeowner, you bear all the costs that come with the maintenance of your home, and also the risk as sometimes the investment may turn out not profitable due to real estate market swings.

Consider your values and wants and those of your family. Your needs and wants change at every stage of your life. 

3. Real Estate Market

The market always determines whether it’s best to rent or own. Examining current prices alongside the history of property prices in your preferred locations helps a lot.

Think through whether it is a good time to buy based on your needs and aspirations or whether you may need to wait for a few periods before buying.

4. Location

Location really matters. Try to buy property located in your preferred neighborhood. If not, you should really think it through before buying at a location you don’t really care for.

If you don’t see yourself staying at a place for a reasonable period, renting is a reasonable option before you see a vacancy at your dream location.

Also, if your job doesn’t allow you to stay in a place for a long time or for any other reasons can’t stay in a place for a long time, renting provides you with the flexibility that buying can’t.

Buying a home requires certainty in the location and what the property has to offer.

Is renting always cheaper

Renting is usually assumed to be more affordable compared to buying, however, this isn’t always the case.

Whether you’re buying or renting, there are various costs attached to each option, and based on your financial situation, one may end up being cheaper or more expensive than the other.

Rent vs Buy: What is the 5% Rule

The 5% rule was created by Ben Felix,  a Canadian investment portfolio manager at PWL Capital. It is meant to help decide on whether to buy or rent a house. 

Before you conclude, the 5 % rule could help you avoid any possible mistakes.

Through this rule, you can estimate the exact three types of costs that homeowners bear:

  • Property tax is estimated at one percent of the home value. This is the first part of the 5 % rule. 
  • Annual maintenance costs are also estimated at 1 % of the property’s worth. The 5 % rule is divided into two parts. 
  • Cost of capital or mortgage interest rate is estimated to be 3 %  of the property value, which means to buy a home you must make a down payment that is usually 20% of the house’s worth. This leads to you using a mortgage to pay up the remaining 80% and your equity is the amount used as a down payment and your mortgage is your debt.

The total value of your property is the same as the amount of your debt and equity, and the total cost of capital is the same as the total amount of debt in addition to the total cost of equity.

The interest paid on the mortgage is used to assess the cost of debt which is 3%.

Whether it’s a down payment or a mortgage, the cost capital is estimated at 3%. When this is added to the 2 percent projections for maintenance and property taxes, we get our 5 percent rule.

Summarily,  homeowners should expect to spend 5 % of their property’s worth in unrecoverable charges

Using the example used by PWL, the unrecoverable expenses of renting can be compared to owning. Multiply the worth of the property you intend to buy by 5 % and divide it by 12 months.

Renting may be a great option if you can get a house for less than that. When considering buying a $500,000 property, you will get  $25,000 in yearly, non-recoverable costs, or $2,083 monthly. 

Rent to Own as an Alternative 

A Rent-to-Own is purchasing a house installmentally without being bound to the purchase. It is usually a great alternative if your credit score is not qualified to take out a loan or you don’t have a large down payment enough to qualify for a loan.

Each agreement can be made according to individual preferences and state laws.

Generally, entering into a rent-to-own agreement usually implies that you are to rent the house at market rate with additional payment added monthly.

This additional payment is to be used by the landlord as a final down payment closing any other costs.

For example, you pay $1,500 monthly to the landlord with $1500 meant for the month’s rent, and the remaining  $500 is separated for the down payment.

If it was a three-year purchase agreement, in the end, you get $18, 000 used as a down payment and closing costs.

Most rent-to-own contracts usually have a date on which you move from renting to purchasing a house. The date is often at least a year after the rental and usually two to three years later.

You can use this period to build up your credit score to be able to qualify for a mortgage. You can also focus on saving up money apart from the monthly payment you make if the down payment needs to be higher than that amount.

A rent-to-own lock down the house you intend to buy by putting it in writing that the landlord made an offer to sell the house at a later date for a preset price.

The contract protects you while you do what you’re required to do to qualify.  When the time is up and you still aren’t able to qualify, the landlord is left with three options:

Continue with the rental to you and extend the agreement for another date to buy; decline to sell it and rather offer to rent to you, or sell it to any other person. 


Renting a place is different than buying. You may rent a plc fire for three years and later find out that the house cannot qualify for mortgage inspection.  This can only be avoided by paying for its inspection before renting to ensure when the time comes for buying, you have a good shot at qualifying for a loan.

When you can’t buy the house when the agreed time comes, you naturally lose all the money you have paid towards the down payment. 

When the landlord defaults on the mortgage payment or encounters any financial difficulties, it may lead to a loss of the house putting an end to the rent-to-own. You have a recourse to sue the landlord, but if the financial difficulties are dire, you may have a hard time recouping your money. 

While making a rent-to-own agreement, if you can, consult the services of a lawyer to ensure you don’t miss anything important and you get the best deal.

Rent vs Buy Calculator

The rent vs buy calculator helps you decide whether to buy or rent. To do this, you may use Nerdwallet, Schwabmoneywise, or Zillow.

In conclusion

The question of whether to rent or buy isn’t always easy to answer. Depending on what’s going on in your life and how much money you have, the answer may change over time. There are other choices, like a rent-to-own home, where you start by renting and then buy it.

No matter what you decide, it’s important that it’s a well-informed choice based on your finances and way of life.

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