What Is Renting vs. Buying?
Renting versus buying refers to the decision that people have to make when deciding where to live. The question has different answers for different people, and there's more than just financial considerations to think about when making your decision. Renting can be less expensive up front, but owning may cost you less of the long term.
Comparing Costs of Renting vs. Buying
When comparing the costs of owning versus renting, make sure to include all the costs, not just the rent versus the mortgage. With a home, it's not just about the cost of the mortgage, but also the cost of real estate taxes and homeowner's insurance and maintenance costs, which can be hard to estimate. For example, if the dishwasher breaks in a rental, the owner replaces it for you. But, when you're the owner, the cost of the replacement comes out of your pocket.
Moving Soon or Staying Put
When you rent, you're only locked in for the duration of your lease, whether that's a few months or a year or two. Once the lease is over, you're free to pack up your things and move one, whether that's to the newer apartment complex down the street or halfway across the country, and pay only the costs of moving. On the other hand, if you buy a home, you can't pull up your roots nearly as easily. It takes time to find a buyer for your old home, and you have to figure out how you're going to pay off your old mortgage.
Investment Value of Homes
While buying a home does allow you to build up equity over time, a home isn't as good an investment as it has appeared to be in decades past. Keep in mind that even though the value of the home might increase if you own it for a long period of time, the gains are unlikely to match the gains you could earn investing elsewhere.
Buying a home can be a stressful event because you're making one of the biggest, if not the biggest, purchases of your lifetime. If your life is in flux, it may be best to rent until things settle down a bit. But, owning your own home may offer additional psychological benefits for some people because of the peace of mind that your house is yours. As Suzie Orman says, "you can't live in a stock certificate."