Renting vs. Buying

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Recently I published an article on the costs of owning a home. The purpose of that article was to shed a light on all of the costs (including some hidden costs) that come with being a homeowner, rather than to debate whether it’s better to buy or rent.

In this article, I’d like to discuss the pros and cons of buying a house and the pros and cons of renting. Hopefully, this renting vs. buying debate will help you to make the best decision for your own situation.

For some background, my wife and I have been homeowners for the past 12 years. I bought a home mostly because I assumed it was the smart thing to do, based on advice everyone had given me throughout my life.

Through the experiences of buying, owning, and eventually selling a few houses, I’ve seen that there are plenty of downsides to owning a home as well. I like to think I’m fairly neutral in the buy vs. rent debate. I choose to own a home, but I don’t think it’s the right decision for everyone, and I’d like to present a realistic and balanced view on the topic so you can make an informed decision about what is right for you (and your family, if applicable).

Other articles in this series:

Table of Contents

Should I Rent or Buy a Home? Factors to Consider:

When you’re trying to decide between buying a house or renting, here are some of the most important things you should consider.

1. How Long Do You Plan to Live in the Home?

The most important factor in the buying vs. renting decision is how long you plan to live in the home. As a general rule of thumb, if you plan to live in the house for less than 5 years, you will be better off renting. And if you are in the house for more than 5 years, you will be better off buying.

There are significant costs involved with buying and selling a home, and typically you will need at least 5 years in order to build up enough equity to break even with those costs. Of course, there are a lot of variables here, like whether home prices are increasing or decreasing during this time frame.

Since it’s difficult to predict what will happen with home prices and the overall economy, 5 years is a good general rule that you can go by. Of course, that doesn’t guarantee anything, but it’s a good starting point for your decision.

2. How Much Debt Do You Have?

If you have consumer debt like credit card balances or personal loans, you should pay off that debt before buying a home. It would be great if you can pay off other debt like car loans and student loans before buying a home, but that’s not always possible.

If you currently have debt, keep in mind that adding a mortgage is only going to make things harder. Not only will you be adding more debt, but you don’t want to run the risk of not being able to pay your mortgage and losing your home.

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3. Do You Have an Emergency Fund?

An emergency fund is savings that is set aside strictly for unexpected expenses. Emergency funds can be lifesavers if you lose your job or have some type of medical or family emergency. Without an emergency fund you could be forced to rack up credit card debt, borrow from a 401(k) plan, take out a personal loan, or miss payments on your bills.

How much you should have in an emergency fund will depend on your situation. If you provide for a family (especially in single-income households) or if you have an unpredictable or unstable income, you should consider having a larger than average emergency fund.

For many people, having enough money in an emergency fund to cover 3-6 months of living expenses is sufficient. My wife and I prefer to keep 1 year of living expenses in an emergency fund because we are a single-income family of four, and being self-employed, my income is unpredictable.

Tip: Get More Out of Your Emergency Fund
It’s best to have your emergency fund in an account that can be accessed quickly and easily. I use and recommend a high-yield savings account at CIT Bank, where you’ll earn an interest rate that is more than 20x the national average.

4. What’s More Important to You: Stability or Flexibility?

Owning a home gives you a little more stability as compared to renting. When you’re renting, your landlord can increase the rent and there is little you can do about it. The property could also be sold and the new owner could force you to leave. There are a lot possible scenarios like this where you might need to move even if you don’t really want to. As a homeowner, you have more control and stability.

One of the most commons reasons for stability involves kids and school districts. When you buy a home you can choose the school district that you want for your kids, and you can stay there. Renting and moving multiple times may mean that your kids have to change schools.

On the other hand, renting gives you more flexibility. As a renter, you won’t have money tied up in a home or property and you won’t need to sell a home before you can move. You can easily and quickly move, regardless of whether it is across town, to a different state, or to a dif