Everyone dreams of living a nice life and being comfortable, and this dream includes having all of your fundamental needs met as well as possessing items that reflect value. For example, having a dream career, a dream car, or even a dream home all provide a sense of success, and owning your own home is a part of that. There are several things you should think about before deciding to become a homeowner.
While buying your own home is a significant achievement, it is not always the best option. Sometimes renting is the better option, and in this article, I will share five reasons why you should rent rather than buy.
1. You can avoid agent fees
The first thing to consider when deciding whether or not to become a homeowner is agent fees. In certain countries, the cost of your buying agent’s services is included in the price of your house. These charges are often a percentage of the home’s value that is added to the purchase price. This cost, however, is not usually paid by the buyer. In fact, when I bought my house, I paid no real estate fees at all. However, there is a catch. You see, if you buy a house, you will almost probably wind up selling it at some time, and you will be responsible for the selling agent’s commissions.
When you decide to sell your house, you will need a real estate agent to market it and find buyers on your behalf. This commission cost can occasionally be as much as 6%. This may appear to be a minor sum, yet it has a significant impact on your overall earnings. For example, if you sold your $500,000 house, you would pay your agent $30,000, which might be a significant portion of the down payment on your next property.
Renting a home is frequently less complicated. A simple web search may bring up all the homes available for rent in a specific area, and most of the time you can speak with the landlord, who is also the home’s owner. This eliminates the need to pay an agency fee if you were to buy instead. As a result, it is preferable to rent a home rather than pay these additional expenses.
2. Renting avoids debt
The second reason why renting is better than buying is that it helps you to avoid becoming hundreds of thousands of dollars in debt. Because most people cannot afford to buy a property outright in cash, they must borrow money from a bank. In reality, the amount of mortgage debts owing each year is in the trillions of dollars globally. However, if you prefer to rent instead, you may avoid adding to this figure. Because the price of buying a new house is generally extremely expensive, most people consider taking out a mortgage loan.
This is how it works: you pay a set portion of the entire cost of the property upfront and then borrow the rest. This appears to be a good deal, but is it? The majority of new homes cost around $500,000 on average. Assume you obtain a mortgage that permits you to pay only ten percent up front, resulting in a down payment of $50,000. This is a little sum in comparison to the actual cost, but it will take the typical individual several years to save up to this amount. In this case, buying a home requires the withdrawal of all of your savings.
The simplest method to avoid debt is to avoid buying a home now. If you have the money for a down payment and want to create equity, that’s OK, but know that you’ll be in debt for the foreseeable future, which some people want to avoid.
3. Less financial responsibilities
One of the reasons most people are unable to purchase a home is a lack of financial resources. Buying a home can cost you a lot of money, and you may be thinking about ways to reduce your financial responsibilities. Renting a property allows you to save money on a variety of expenses, allowing you to retain more of your hard-earned money on hand. One of the most popular misunderstandings regarding renting vs owning is that buying is always cheaper in the long term. This is not always the case, since buying might be more expensive in the long term than renting.
So, if you want to lower your financial responsibilities, you must weigh the two possibilities and select the one that works best for you. Several factors will decide if owning a property will be less expensive in the long run than renting. The location of the home you wish to buy, for example, will impact whether or not its value will increase over time. In reality, you will see in this article certain cases when renting will assist you to pay less than if you owned. As a homeowner, you must regularly maintain and repair your house; this is a significant expense that may be avoided if you rent.
If something goes wrong, your landlord will be responsible for doing any essential maintenance and repairs. For example, if your roof is leaking, you may easily contact your landlord to get it repaired. When you buy a house, you must make all of the repairs yourself and with your own money. Unfortunately, some repairs will be costly, reducing your capacity to save and invest. Don’t be confused if someone tells you that renting is a waste of money. The fact is that paying rent is not a waste of money since you are obtaining use from that area in the form of shelter and comfort.
In reality, there are hidden costs that you must pay if you buy a home, so the total price is higher than what you first paid. As a homeowner, you must pay property taxes and insurance. So, before you decide that buying a home is more financially advantageous than renting, you must consider all expenditures.
4. More flexibility
Renting rather than owning provides you with greater freedom. You are not tied to a certain location and may quickly relocate if your life circumstances change. Homeowners, on the other hand, do not have the same kind of freedom. Once you’ve settled into your house, you’ve already incurred plenty of one-time expenses and would have to invest far more if you wanted to sell. As a result, if you are not intending to dwell in an area for more than 5 years, the best advice is to consider renting rather than owning a home.
But you may be asking what compelled you to relocate in the first place. You may be given a new work in a distant place, or you might have a love interest who resides overseas. It is simple to relocate when you rent a home, but it is more complicated when you own one. A homeowner would have to list their home, wait for an acceptable offer, and then sell. A renter, on the other hand, may give his or her notice and depart. Finding an interested buyer might be difficult at times, and you may wind up selling it for less than the current market worth simply to break even.
Another reason renting is the greatest option if you desire flexibility is that you can stay wherever you wish. You can quickly go to urban regions with a high level of social and infrastructure development. It will be pricey to purchase a new house in such areas, but it will be reasonable if you plan to rent. Renting also allows you access to certain basic utilities that would be too expensive to set up in your own house. These features include having access to a swimming pool or fitness club in your rental property, as well as the ability to easily relocate to another place if needed.
5. The opportunity cost of a down payment
The final reason why renting is preferable to buying is a cost that many people overlook. Simply defined, opportunity cost is the cost of a missed opportunity, and when you put down tens of thousands of dollars on a home as a down payment, upgrade your home, or pay your property tax bill, that money could have been utilized elsewhere. For example, if you buy a $400,000 home with a 20% down payment, you will have handed the seller $80,000 of your hard-earned money.
This money will be held as equity in your home, and if the value of the property improves, so will the initial $80,000 investment. Assume that residences in your community appreciate at a four percent annual rate; after ten years, your initial investment would have increased by about forty thousand dollars to just under a hundred and twenty thousand dollars. That sounds very wonderful, doesn’t it? Well, what if that large sum of money was invested instead of rent? If you were to reach the stock market’s historical return of 7%, that same $80,000 would be worth roughly $160,000, or nearly double.
So, what is the opportunity cost in this scenario? It is the difference between house appreciation and market appreciation, or in this case, a $40,000 in this example. Not to add other fees like property taxes and home insurance that could have been invested if you choose to rent rather than buy. If you ask me, I would have preferred to make the extra $40,000, but this is only the tip of the iceberg when it comes to opportunity cost. You see, in order to save up for the $80,000 down payment, you would have had to save for several years.
If you saved $1300 each month for five years to save for that down payment, which you kept in your bank, you would have missed out on a tremendous investment opportunity. You see, investing $1300 per month for five years at 7% would have left you with more than $93000 rather than the $80,000 you would have earned and saved over that time.
Frequently Asked Questions
Should We Rent or Purchase a Home?
There is no clear answer as to whether renting or owning a property is preferable. The answer is dependent on your unique situation, including your resources, lifestyle, and personal aspirations. You must assess the benefits and costs of each option based on your income, savings, and lifestyle.
Is renting less expensive than buying a home?
Renting a home can be a highly predictable expense. You are aware of your costs in advance and can plan accordingly. On the other side, if you live a luxury lifestyle, you may find that renting is more expensive than owning a property, even if acquiring real estate requires repairs and regular care.
Is Owning a Home a Good Investment?
Purchasing a home can be an excellent investment. You might be able to accumulate equity. However, like with any investment, the performance of your investment is determined by a variety of circumstances. When it comes to real estate, elements such as location, economy, upkeep, and environmental concerns can all have an impact on the overall value. Remember that nothing is ever static, thus everything might change.
But the final opportunity cost that almost everyone ignores is your time. Your time is valuable, and when you own a home rather than rent, you tend to have more responsibilities. For example, as a homeowner, you must maintain the property, attend to appliance issues, and do frequent house inspections. However, as a renter, you are essentially exempt from all of these responsibilities.
Your living quarters become a hands-off obligation, and all you have to worry about is paying your rent on time and keeping them clean. With all of this more time, you may work more or enjoy your free time instead of undertaking boring homeownership tasks that will take the time you will never get back. While owning a home is appealing, there is a solid case to be made that renting is the better option.