Renting vs. Buying
POSTED ON July 30, 2023
BY Mallory Sage

The housing market is a concern for everyone these days. Rental prices are fluctuating and the cost of buying a house may seem almost insurmountable, depending on where you live. Deciding on housing is a heavy question – but here are some of the factors to consider in renting vs. buying.

The Personality Factor

Are you always on the move? Do you love a change of scenery? Is going out and exploring your city a priority for you? Is “home” more of a place to rest your head than a place you go to recharge? Then renting may be the choice for you.

When you rent an apartment or home, you may not have the same amount of space or control over your space, but you do have the opportunity for immediate change. Did you get a new dream job in another city? No problem! Do you hate your neighbors? Time to find a different apartment. Do you want to spend a few months backpacking across Europe? Go get it!

But if you’re the type of person who wants to nest, then buying a home could be the right choice for you. Buying a home is (or should be) a long-term commitment. If you are ready to settle in one place, crave stability, or want to invest in your home as a space of solace or a gathering place for family and friends, you’re better off buying a space where you have full control and the time to cultivate your space.

The Cash Flow Factor

Cash flow is often one of the most important factors in renting vs. buying. The upfront cost and uncertain care fees that go into buying a home can be intimidating, especially for first-time buyers. In the long run owning a home usually gives you more money in your pocket than renting. We’ve run detailed scenarios with conservative assumptions and they almost always favor long term home ownership. What does that mean? It means that in the long run owning a home is cheaper than renting and you will end up with more money in your pocket than if you rented. That difference can be substantial.

The benefit of renting over buying is that your housing is a fixed cost. If you sign a lease with your rent set at $2000, then that will be the price you pay until your lease runs out. If there are any issues in your rental, the responsibility (and cost) of those repairs falls on your landlord, not you. This is great for business owners, people with fluctuating income, and anyone else that doesn’t have a decent amount of cash saved to ride out major fluctuations in income.

The benefit of buying over renting is the long-term stability as a home owner. Consider home buying as buying future lodging at current prices. While renters are at the mercy of fluctuating rental costs depending on the housing climate, owners who intend to stay in their homes for at least ten years are likely to pay less overall. And when we say less, we mean even after considering the costs of repairs and home maintenance.

Your mortgage, property tax, and home insurance should be roughly 35% of your income. This may vary in some states (like California) where homes are typically above the national average. If the price of homes where you are is well above 35% of your income or you have little-to-no wiggle room in your budget for catastrophes, renting may be the way to go.

The Tax Factor

If you are looking for tax benefits, you won’t find them in renting. Renting is a straight expense with no tax savings unless you use a part of it for your business.

In renting vs. buying, becoming a home owner has more tax savings. Generally, home owners pay less taxes than renters in the same income bracket. Why?

Home owners can itemize on their return and take more expense than the standard deductions. This is not an option for renters.

Renting vs. Buying

The choice between renting vs. buying isn’t always clear. It’s different for each person. What holds the most value to you may change over time as your priorities shift, your preferences change, and your income fluctuates. These are only some of the factors that may influence your decision.

If you’re a business owner, uncertain about what choice may be best for you, consider setting a meeting with us. Not only can we help improve your financial health based on what services you need, but we prioritize tax planning and helping our clients make huge financial decisions like home ownership.