So, you’re getting to that important, exciting, yet anxiety-inducing stage in your life. You, and possibly your significant other, are looking for a new place to stay. You’ve saved up a bit of cash, and now it’s time to weigh your options. But, what should you do? Rent an apartment, or buy a home?
If this very question keeps you up at night or causes you stress, know you’re not alone. Keep reading below because we’re going to give you some questions and factors to consider so you can decide with confidence if you should you rent an apartment or purchase a home?
Table of Contents
Questions to Ask When Renting an Apartment vs Buying a Home
You simply cannot know whether you should rent an apartment or buy a home until you consider many other factors. So, with that in mind, read our list of questions below.
■ What is my monthly budget?
■How much can we afford to allocate to monthly living expenses?
■What are my long-term financial goals?
■Is the area we’re looking into safe?
■How will living in this area affect my commute to work?
■What other costs need to be considered? i.e. renter’s insurance/homeowner’s insurance, security deposit, property tax etc.?
■If renting an apartment: what’s included in the price of rent? Water? Electric? Wi-Fi? Or will these be an extra cost to you?
■If buying a home: Do I see myself happy here in 5 years? 10 years? Is this a home that will fit my desired lifestyle? Will I outgrow it, or can I grow into it?
■Am I looking for stability, or flexibility?
Stability lends itself more to purchasing a home, while the desire for flexibility will be better fulfilled by renting an apartment
Pros and Cons: Renting vs Buying
We know, we just gave you a lot to think about. If you’re overwhelmed, that’s ok. No great life decision happens overnight, and neither will this.
BEFORE YOU START:
Get out a pen and a piece of paper and rank the pros and cons we are about to present to you.
With every pro or con that we list, assign it a number ranking. 0 would be for a factor that holds no importance to you. Whereas a 10 means this pro or con is completely non-negotiable.
Once you’ve tallied up your pro and con scores, it might become clearer which makes more sense for you; Renting an apartment vs buying a home.
ADVANTAGE OF RENTING AN APARTMENT
■Easy to change
If you end up not liking the location, get a new job, or have a gripe with your neighbors, then it’s fairly easy to get out of a rental contract. Or, at the very least, you know the living situation is temporary.
Because you won’t have to pay mortgage, homeowners’ insurance, property tax, and mortgage insurance, it’ll probably cost you one third to one half less on a monthly basis to rent an apartment.
Or, rather, zero upkeep. Leaky sink faucet? Call the landlord. Toilet overflows? That’s the superintendent’s job to fix. In addition to not paying for the repairs, you also don’t have to worry about who to call to fix it.
DISADVANTAGE OF RENTING AN APARTMENT
When it comes to renting an apartment, sometimes it seems like the money you pay goes to waste. This is because once your contract is over, you’ve got nothing to show for it. No ownership in a house that could eventually increase in value. No tax benefits. Just another monthly bill.
■Not your place, not your rules.
When you rent, there are probably certain clauses you’ll have to abide by. Whether that’s promising that you won’t paint the walls, you won’t have a pet, or will abide by quiet hours, it can feel limiting at times. Especially if you’re one to redecorate, adopt furry friends, or host friends and family.
■No guarantee of stable monthly payments.
While for the duration of your rental agreement you can count on monthly payments to stay the same, there is no promise that they won’t go up next year, or the year after, or the year after.
■No updates in sight.
Since landlords tend to repair apartments, replace carpets, and repaint in between renters, as a result, you’re stuck with the appliances, décor, and furnishings that you’ve got. This may feel limiting if your rented apartment is in desperate need of an upgrade.
Now, remember to rank each of these pros and cons on a scale of 0-10. Got your pro score and con score? Good! Keep it handy. Let’s do it all over again for buying a home.
ADVANTAGE OF BUYING A HOME
If you plan to hold your house long term, the value of your home will probably go up. Especially if you purchased a home in a up and coming area. This means you your monthly mortgage bill has the potential to come back to you one day.
■Your home, your decisions.
If you don’t like that wall, knock it down! Want to add on a garage, go for it! Since it’s your home, there’s no contract clauses to keep in mind. So, go ahead and invite people over late at night and get a few dogs, there’s no landlord to stop you!
■Tax deductions galore!
When you pay a monthly mortgage bill, just like with any other loan, you pay interest. While initially that may not sound like a pro, at the end of the tax year it’s a nice write off.
DISADVANTAGE OF BUYING A HOME:
Hate your neighbors? Community depreciating in value or safety? It’s not as easy to up and move when you own a home. Unlike renting an apartment, moving out is quite the headache. Find a buyer. Choose a buyer. Hope the buyer gets approved. Hope the market is in an ideal place to sell. Find the kids a new school district. There’s certainly a lot more to consider.
■Your home, your problems
Any damages or problems that come up, they’re on you to fix. Whether you decide to do a web search and handle the problem yourself or dump your own money into a handyman is up to you. But consequently, the responsibility is yours and yours alone.
■Larger monthly payments and more costly annual payments.
On top of an initial deposit (usually about 20% of the buying price) and your mortgage bill, you’ll be faced with another collection of payments. And probably, if you’ve never owned a home before, you’ll never have encountered this many steep costs.
From homeowner’s insurance, to property taxes, to mortgage insurance, to possible Homeowner’s Association fees (HOA), these costs can feel pretty overwhelming to first time homeowners. And don’t forget other monthly bills like water, electricity, and Wi-Fi that might have been included in your rental contract. You’re also responsible for those now.
GOING BACK: WHAT ARE YOUR RESULTS?
Alright! Have you rated your pros and cons of buying a home too? Compare them to the scores you got when considering renting an apartment. Which cons are rated higher? Which pros?
This rating system is a great way to highlight your personal values. It also ensures that the choice you make best aligns with what you’re comfortable with.
What’s the different between leasing and renting?
In a lease, you’ll find strict terms that both the landlord and lessee (that’s you) have to abide by. That includes a long-time frame (at least a year) and locked in monthly payments for that amount of time. The terms of the lease might be able to be slightly negotiated, but overall think of it as a more strict, long-term rental.
In contrast, renting can be as short term as 30 days. This is a good option for someone looking for extremely short-term housing but might not be ideal otherwise. Because your contract will be renewed after 30 days (or however long the term of the rental agreement is) clauses like your monthly payments can change. Maybe you even get kicked out if the landlord finds someone willing to pay more next month. As a result, we would have to say renting is a less stable, more short-term form of leasing.
Leasing is a more permanent version of renting, it’s not up to you to set the terms. The terms of a rental or leasing property is up to the landlord, and you’ll have to abide by them either way.
Additional Factors to Consider
■Your Credit Score
For better or for worse, your credit score will come into play whether you rent an apartment or buy a home. This is to ensure to either a landlord or the bank that you can make timely monthly payments. Ideally, you’ll want your credit score to be no lower than 620, although this is even on the low side.
Having a good credit score will increase your likelihood to get a smaller interest rate or get approved right away.
Want to improve your credit score in just 30 days? Click here now!
■Your Monthly Budget:
Still not clear what you can or can’t afford? That’s ok! It can be tricky to figure out sometimes, especially when you deal with something as volatile as the housing market. To get a more personalized idea based on your own financials, try out The New York Times Rent or Buy Calculator, here: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
■Your 5 Year Plan:
What does the next five years of your life look like? Kids? A dog? An in-home gym? Whatever makes up your five-year plan, make sure your living situation can handle it. It would be unfortunate to outgrow an apartment or home all because you didn’t do enough planning.
■Homes with Rental Opportunities:
There’s nothing wrong with following in the footsteps of some of the greatest real estate tycoons. If possible, purchase a home that you can then rent out until you’re ready to handle the monthly payments yourself. Or, buy a home that has an attic or basement apartment that can be put up for rent while you live in the main space. Hacks like these can help you own a home without taking on the full financial responsibility.
Overall, every person is different. Every financial situation is different. There truly is no cut and dry answer when it comes to renting versus buying. Nevertheless, the general decision should come down to if you plan to stay in that location for a long period of time.
If your plan is to stay in the same living situation for three years or more, it’s probably time to consider buying a home. Especially if you don’t think you’ll outgrow the home within the next 5-10 years. However, if you’re not ready to make a long-term living commitment and still want the flexibility to move every year or so, renting an apartment seems like the right move for you. Not only is it cheaper, but it gives you the freedom you want.
Have you recently decided on renting an apartment or buying a home? Let us know in the comments below! Was it hard to make the decision, or easy? Any advice or stories that you’d like to share? We’d love to hear it all!
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