Is Renting Better Than Investing in a House

Is Renting Better Than Investing in a House

A lot of chatter out there is about which is better: renting vs. Investing in a House. The term “investing” is often used to talk about the money to be made from the house or apartment and is more about the return on investment (ROI) sometime down the road.

The next question is: do you plan to sell the house at some point, and if so, how long do you see yourself living in the house?

There are a handful of considerations when it comes to deciding whether you should rent versus buy. On one hand, renting is nice because what if this new job ends up taking you to the other side of the country in three years’ time? You’re not going to have to add “sell the house” to the list of things to do before a cross-country move. And that’s a much easier way to live.

On the other hand, however, what if you really love living where you are, have a steady and secure career, and really want to stop paying down someone else’s mortgage? What if you feel like you’re ready to buy a place to make and call your own?

Well, if you can answer some of these questions, you might be well on your way to discovering if renting is better than investing in a house—or not.

Perks of Renting

There are a handful of perks to renting and they do make sense for many people, regardless of your stage in life. Renting isn’t uniquely for college kids and divorcees. Renting can be a great way to keep your savings growing or to make it more readily available for spending or investing in other areas. With some proper research and a bit of luck, maybe the ROI of that investment brings in more than had the savings been earmarked for a house deposit, fees, and closing costs.

It’s also nice to have someone else take care of the to-dos of home maintenance. When you rent, your landlord is the one responsible for making the tweaks and repairs to keep the property in tip-top shape.

You may also gain a renewed sense of freedom and flexibility when you opt to rent a place. A tenant can move from place to place more freely and easily after the expiry of the lease. With this freedom of choice, it’s no wonder that renting makes a lot of sense for some.

Additionally, if all your savings are tied up in a down payment on a house, it’s very unlikely that you are Investing in a House or in other places, let alone diversifying those investments. By renting, you keep your savings open to other roads that might not have otherwise been taken.

Negatives to Consider

However, one of the cons associated with renting is the well-known “it’s more expensive to rent.” Not always, but there’s some truth behind the notion. Inflation and the sheer rise of property prices can make this so. It can also be more expensive to make rent payments as opposed to putting those funds into owning your own home. When you have to make your mortgage payment, it’s almost like you’re being forced to save. The money pays your main bill and simultaneously builds equity in your home.

Benefits of Buying

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While renting has a handful of perks, there are some benefits that go along with buying property too, be it a home or an investment property, such as a rental home.

When you buy a home for yourself, there’s a certain sense of comfort and stability in that there’s no landlord to evict you, and you’re free to decorate and make the space to your taste.

Most renters are familiar with the rising price tag on monthly payments each year or each time the contract is renewed. This isn’t something you have to worry about (as much) when you buy a home. Your monthly mortgage payments are figured out so that you know how much they are for the duration of your loan. The market will be the overall determining factor, but with a fixed-rate loan, you know what you’ll be shelling out on mortgage payments annually.

That also goes hand in hand with the fact that there’s a general rise in home prices over time, and your financial relationship to your loan will also be related to how the housing market is doing overall. Buying a home should be considered a long-term investment and not chalked up to the “glamour” or “fast profits” of flipping houses.

A final benefit to consider is that you’re building equity in your home, and that means that you can borrow against the value built into the home over time and use the funds for anything from a renovation to sending a child to college, to making a big purchase or even going on a vacation.

Negatives to Consider

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A few cons to carefully consider include more numbers. You will need to consider how much interest you will be paying, although rates can certainly fluctuate during the course of a home loan. There are also opportunity costs to consider. That is, if your money is tied up in a property, you cannot be Investing in a House or it elsewhere. And finally, although you may consider that buying a home is only about the deposit and repaying the loan, it’s also important to factor in the costs of fees, closing costs, and all home maintenance costs, agent fees, association fees, and property taxes.

Note on the Term “Investment”

“Investment” implies selling the house at some point. For an ROI to be made, the house or property will have to be resold. Assuming everything has been maintained, that the housing market is still chugging along, and even, perhaps, a couple of upgrades have been made to boost the beauty or usability of the home, you may be able to look at the numbers and say that you got more back than you put in.

A note for anyone debating between the two options: it’s best to let it boil down to the math. The factors to consider when running the numbers can include your financial resources, lifestyle, family goals and requirements, investment portfolio and future aims, among other things.

For any questions, Rivermark Community Credit Union is there for you. We can help take a look at both sides and see which makes the most sense for you.

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