Benefits of Owning Real Estate vs. Renting
According to Pew Research, more U.S. households are renting than any time over the past 50 years, although there are still more homeowners than renters overall.
If you’re trying to decide whether you should rent or buy, whether in Los Angeles, Austin, Boston or somewhere else, knowing the benefits of each can help you make decisions for your situation.
Benefits of Owning Real Estate
Security and Potential for Financial Stability. When you own your home, you’ll enjoy the benefits of security without having to worry about being forced to move should a landlord decide to sell or turn the place into an Airbnb. It also comes with the potential for greater financial stability. The home’s value will appreciate over time in most cases, so if you decide to sell, you’ll earn a profit, which can be significant. This can be a major benefit when it comes to increasing your net worth when selling your home years down the line. The rate of return is significantly increased the longer you own it.
Freedom. When you’re a homeowner, the property is yours legally, so you’ll enjoy more freedom to use it without restrictions that are likely to be enforced by a landlord. Perhaps you can finally get that dog you’ve always wanted, make landscaping renovations, décor changes and what have you to suit your own particular style. Making changes to a rental property usually requires a special arrangement between tenant and landlord, but when it’s owned, home improvements can be made without having to wait for approval.
Tax Advantages. One of the more immediate monetary benefits of buying a home is the tax advantages. You’ll be able to deduct most or all of any interest payments made on a mortgage loan as well as loan points and property taxes, as the majority of the monthly payments go towards interest during the early years of the loan.
Benefits of Renting
No maintenance costs, taxes or unexpected bills for repairs. Owning a home is a huge financial responsibility. Not only will you have to pay those monthly mortgage payments, but shell out money for maintenance, repairs, taxes and more. When something major must be fixed or replaced like a water heater, it can be a big financial setback if you aren’t prepared, and those things often come when you least expect it. As a renter, in most cases you won’t have to worry about any of that; your landlord will. The only insurance typically required by a tenant is to cover the contents of a home.
More flexibility. If you’re renting and are faced with a sudden change like a job relocation, you won’t have to worry about putting your home up for sale or trying to rent it out to someone else. Above and beyond the lease, you won’t have a long-term commitment like homeowners do, which means renting may be the best option if you think there’s a chance you’ll have to move in the future or don’t intend on staying in one place for a long time.
No down payment. While you’ll probably have to come up with at least the first month’s rent and a deposit when renting, it’s unlikely to be near as much as what you’d need for a down payment when buying real estate. With a mortgage, a 20% down payment is advised, which means in today’s market, at least $40,000, but probably a whole lot more depending on the area. Even if you were fortunate enough to find a mortgage that only requires a 5% down payment, on a $200,000 house that $10,000 is still significantly higher – and you’ll probably have to come up with more for closing costs and other fees.
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