Thinking of buying a home?

Renting vs. buying can be a big deal for some people, especially with your home being your biggest expense. The no. 1 argument for buying is building equity and not paying someone else for the right to live somewhere. Although true this equity can be easily wiped out with one mistake, repair, or tough situation if not properly prepared. When renting a home you have the right to repair at the owners expense, not yours! There are many factors to consider but ultimately up to you if you think the pros outweigh the cons.

Renting

When renting a home, all expenses you have to worry about it the rent/lease payment. You are paying someone else for the right to stay in their home. Sometimes with this agreement utilities are included. The place also has to be habitable, so by law any repairs, damages, or miscellaneous needs are at the owners expense. You also don’t have to worry about home insurance (for structure damage).

Depending on your rental contract, and the area where you live you can leave at any time (with proper notice, again depending on the area/contract). This means that if you ever have to relocate for a job, school, or any big life event you can pack your bags and it’s as easy as finding another place to rent or lease.

The downsides to renting

You aren’t building equity. So any rent payments will be pocketed by the landlord. It’s up to them to use these profits to make this place nice to live and manage the property. If they are leveraging they still have to make mortgage payments. They also have to pay the utilities, insurances, and repairs.

Repairs sometimes will take a while depending on the landlord. Even though you have rights, sometimes it takes time or it’s difficult to exercise them. Countless phone calls, texts, emails just to get your hot water or sink fixed. This can really affect your day to day.

Poorly managed properties. This can either be a bad landlord or bad management company. They are providing a service to you, and sometimes it might not be so great.

Rent increases. Again dependent on area, this can be drastic if suddenly your landlord wants to increase the rent by $100. It can completely ruin your budget or make you want to leave the area. Sometimes that extra payment won’t be worth being closer your desired area.

Owning

When owning a home you are taking a huge responsibility, but with the risk comes reward. Paying your own mortgage is more reliable than paying a rental payment. When you to take a mortgage (assuming you take a fixed interest rate) you lock in an interest rate. This means that your mortgage payment will not change for a while. This can mean even if rent in the area goes up your mortgage payment will remain the same.

With owning you are also building equity. This means that part of your mortgage payments will build you value. This value can eventually be used to borrow on or even help lower your monthly payment by refinancing. This value is also given to you if you decide to sell the property. When you sell you pay off your current loan with the purchase and keep the difference. More value in your home means less risk for you and creditors. Your payment also will be less since you don’t have to pay PMI, or Private Mortgage Insurance once your equity reaches at least 20% of the home value.

The downsides to ownership

Extra expenses. Keep in mind that this house is now yours and your responsibility. You will have to pay for all the utilities that you use and any repairs will have to be done by you or expensed by you. If your plumbing or air conditioning breaks you have to be the one to pay out of pocket and this can be drastic if you can’t afford a surprise expense.

Property taxes. Now there will be extra bills to pay maybe your city or county will send you a bill. Although sometimes done automatically through your mortgage payment, this is something you have to keep in mind that you have to pay.

Insurance. Now that this is your problem, you have to make sure you protect your biggest asset. Again this is probably done automatically through your mortgage payment, but this is something you have to keep in mind. You can actually shop around for home insurance and find cheaper quotes if needed.

Limited mobility. This house is yours now so leaving the area is a little more difficult. Although you can always sell the property and move, the process isn’t as easy as just packing and putting the house on the market. Keep in mind that there are seller fees, paperwork fees, escrow fees, commission fees and a bunch of other expenses to selling a property.

What’s best for you?

Renting can beat owning as it relives you from all the stress of home ownership, but sometimes having a reliable mortgage payment is nicer. Although building equity is nice sometimes the extra expenses aren’t. There is also such a thing as buying too much home or too little home. If you buy your home too early in life, and after plan to build a family with too small of a home you might have to shop around for a bigger home.

It’s all based on how you live your life. Are you more settled down and love your city enough to be there forever? Or do you prefer to move towns, cities and countries often? Just know that whatever you pick you can always build wealth even if it’s not through equity.

Thank you for reading and I’ll see you next Sunday,
– Pablo