Rent vs. Buy: What to Consider About Becoming a Home Owner

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What we’ll cover:

  • Where do you want to live? In some cities, buying may not always be cheaper
  • How much flexibility do you want? Buyers should be in it for the long-haul, renters can hop around
  • How do you feel about DIY projects? Home maintenance is a big responsibility
  • Renting or buying is about more than just the numbers

Being a homeowner has a lot going for it – you can hammer picture hooks into walls with abandon, paint bedrooms at will, and open your doors to any animals you’re willing to feed.

But there’s a lot more to owning a home than autonomy.

There’s time, money and a lot more responsibility that could sway potential buyers to stick with renting.

So how do you decide if you should rent or buy? Here’s a list of some things you’ll want to consider.

Where do you want to live?

In theory, it could be a better financial move to own your home rather than hand over rent to a landlord, but this calculation may depend on  where you live. We’re talking which state or city you choose, and where within that area you choose to hunker down. In some cases, (ahem major metropolises) the cost of renting could be close to or less than the cost of owning. 

Several factors can impact this calculation, such as how long you plan on living in a certain place. One way to get a quick read on which option is more affordable is by comparing median monthly rent and mortgage payments. Getting local numbers can be a challenge, but realty, lending and general interest sites typically highlight housing trends.

How much stability or flexibility do you want?

If you want to hop zip-codes or even countries in a short period of time, renting could be a solid bet because leases are relatively short agreements. And if you need to break your lease, you may have some wiggle room. For instance, you may be able to negotiate an early exit with your landlord or get a sub-letter to cover the cost (lease-permitting).

Closing costs, which tend to hover between two and five percent of the sale price, are expenses buyers and sellers will contribute to.

Renting can also be a way to gauge whether you like a neighborhood and its surrounding areas. Think of it like test-driving a car before buying it. 

Plus, if you plan to move out in less than two-to-five years, you may want to hold off on purchasing a home.

The reason: Homebuyers sink a lot of money into upfront costs and if you sell your home before the two-to-five-year mark, you’re giving your home a small window to appreciate in value and possibly offset some of those costs you fronted.

Possible capital gains taxes are another reason. If your home isn’t your primary residence for a certain amount of time you could be taxed if the sale turns a profit.

What kind of upfront costs are we talking about? 

Closing costs, which tend to hover between two and five percent of the sale price, are expenses buyers and sellers will contribute to. These costs can include items like origination fees – the price you pay for processing a mortgage, and title searches. Title searches can confirm that the seller has the legal right to sell the property, as well as identify any liens a buyer may pick up if they purchase the home as-is.

If you’re looking for hard numbers, a report by ClosingCorp examined closing costs across 1.5 million single family home purchases in 2018. They found that the national average, including taxes, was $5,779 based on the average housing price of $294,164, which comes in just under the two percent estimate. 

The bottom line is this:

If you’re picking your home for the long haul, the money makes sense and you like the neighborhood, owning could be a good move.

How much maintenance do you want to deal with?

Renters may need to follow their building’s rules, but things like leaky pipes, broken radiators and clogged sinks are the landlord and super’s problems, not yours. 

When you own, you’ve got regular monthly, seasonal and annual home maintenance items you’ll need to consider. The general estimate is that your annual maintenance budget should be about one to two percent of the purchase price. For a $400,000 home, that means setting aside between $4,000 and $8,000 a year. 

In addition to maintenance, there are other costs homeowners may need to cover, including:

  • Mortgage insurance
  • Home insurance 
  • Flood insurance 
  • Home association costs
  • Property taxes

Is it better to rent or buy? Truthfully, it’s about so much more than the numbers

As much as the decision to rent or buy a home is about money, it’s also about much more.

It’s about living where you’re comfortable and evaluating what you consider more valuable and enjoyable; you may enjoy DIY repairs, finding contractors and knowing that you own where you live.

You may also be betting that when you sell your home you’re going to come out with a nice amount of cash. For that we recommend a lot of legwork and dash of skepticism – trends change, and the housing types and places that are popular now may not be when you’re ready to sell.

Renting may include a few advantages – you can leave relatively easily and you don’t need to budget for property taxes. But renting can also be stressful: you could be tied to an unresponsive landlord, or have to worry about rent increases when your lease is up for renewal. And if you’re renting with no near-term plans to move, home could feel less  like “home” and more like a place you crash that happens to have your stuff inside.

The items we’ve outlined here are just the beginning. If you’ve never owned a home or never rented one and want real-life accounts, talk to the people you know. It’s a pretty strong bet that everyone has at least one story – good or bad – about their housing choice and what they may have done differently.

Want to turn your house into the home of your dreams? Learn more about Marcus Home Improvement Loans.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.

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