If you’re like most Americans, you probably believe that buying a home is better than renting. You like the idea of paying for something that will eventually belong to rather than putting money into a landlord’s pocket. Plus it’s an investment. While these are advantages to buying a house, there are a few reasons why renting may actually be the better option.
1. Renting is cheaper than buying.
Housing markets fluctuate and there was a time when buying a home was cheaper than renting. Following the 2008 financial crash, the housing market plummeted, making it possible to buy a house at bargain prices. This picture has shifted. Today, housing prices are often higher than rent prices.
According to Market Watch, nearly two-thirds of Americans live in areas where it is cheaper to rent than buy. In 442 of 755 counties, renting a three-bedroom median-priced home is more affordable than buying one.
On the flip side, in some cities, like Greensboro, Colorado Springs, and Philadelphia, buying trumps renting. A study by GoBankingRates found that buying was cheaper in 31 U.S cities. So it’s best to do your homework before making a decision.
2. Renters insurance is cheaper than homeowners insurance.
Another perk of renting is that insurance is lower because you have less to insure. Renters insurance covers theft and damage to your personal items. Homeowners insurance includes structures like the building, walls, and fixed furniture.
According to The Zebra, renters insurance costs between $181 and $285 annually. Comparatively, homeowners insurance costs between $1,501 and $2,027. Homeowners insurance rates can differ wildly from state to state, with factors like natural disasters influencing rates. States like Louisiana, Florida, Oklahoma, and Texas are the most expensive, averaging around $1,900 annually.
With renters insurance, you can safeguard yourself further with liability coverage which covers damage to another property. For example, if a fire breaks out in your apartment and spreads to the apartment next door, liability coverage will pay for the repairs to your neighbor’s apartment.
If you live in an area where natural disasters are common, check if your renters insurance policy covers damage from hurricanes, tornadoes, hail, or flooding. Most do not cover damage caused by earthquakes and flooding. You’ll need an additional insurance policy for that. Even with the extra policy, your total insurance rate is still going to fall well below that of a homeowner’s policy.
3. You don’t pay property tax.
Homeowners are expected to pay property tax to subsidize local services such as schools, transportation, emergency services, parks, recreational areas, and libraries. How much you pay depends on the value of your home. Because property can either increase or decrease in value, tax assessors conduct a valuation every one to five years in order to tax the homeowner the correct amount.
As a renter, you won’t need to worry about paying property tax. The national average for property tax on a home valued at $250,000 is $2,700 per year. In a more expensive city, like New York City, it can be close to $5,000. That’s a large chunk of change you can keep in your pocket by renting.
4. Homeownership comes with extra costs.
When weighing up the cost of renting versus buying, there’s more to buying a home than just the mortgage payment. And property tax isn’t your only additional cost. There’s home maintenance, gardening, utilities, and an HOA fee if you purchase in a development with a homeowners association.
As a renter, if the HVAC system breaks down, a water pipe bursts, or a storm rips off the roof, all you need to do is report it to the landlord whose responsibility it is to fix it. These types of repairs are expensive and by renting, you avoid it.
5. Buying a home isn’t always the best investment.
Buying property has always been seen as an investment. This is true but it isn’t always the best investment. Property markets fluctuate and houses depreciate if you don’t maintain or update it. This can mean your return on investment ends being disappointingly lower than envisioned.
By choosing to rent, you can invest the money you’ll save in a higher-yielding investment. With the help of a savvy financial advisor, the right type of investment can actually outperform the equity you’ll build by buying a house.
Deciding to rent or buy is a big decision. There are a lot of variables that influence the costs of both renting and buying. If you’re trying to decide which is the better route to take, this rent vs buy calculator can help you crunch the numbers to see which option is more affordable in your specific area.