Although there are entities out there with a vested interest in promoting the idea that it is always cheaper to buy than to rent, that doesn’t automatically answer the question: When given the choice, is it better to buy or rent a home?
Adding up the numbers
The average monthly cost to run a typical three-bedroom property for a first-time buyer is estimated to be only slightly less than the rent you would pay on a similar property.
A combination of still-low mortgage rates by historical standards, and a squeeze on available rental property prices due to an imbalance of available rental properties and prospective tenants, has helped to widen the disparity between mortgage and renting costs.
And while the cost of buying a home has definitely gone up over the last several years, it seems that these costs have risen at a slower rate than the cost of renting.
Owing a property
The greatest challenge facing many would-be house buyers is the amount of deposit that they need to find, especially when house prices are continuing to rise in certain areas.
The average loan to value ratio for first-time buyers is about 80%. That means most house buyers need to save significant cash in order to get onto the property ladder.
The good news is that mortgage rates are still relatively low at the moment. So once you manage to raise the required level of deposit, you should be able to get a competitive mortgage deal with repayments that compare favorably against the cost of renting.
It is too simplistic to just compare the cost of a mortgage against the average rent. That’s because property ownership comes with a host of other responsibilities and bills.
You don’t have to ask the landlord when you want to change the decor when it is your own house. However, any repairs will be down to you. And that could be very expensive if something like your air conditioner fails or a water pipe bursts.
Renting a property
A rented property checklist is much smaller in comparison. Your main concern is paying the rent and utility bills. But any repairs or maintenance will normally be the responsibility of the landlord.
Some believe that is far easier and less expensive to rent rather than buy a property because they don’t have to worry about the usual wear and tear issues that you would need to address if you owned the property.
There’s certainly something to be said for not having to be responsible for home repairs. It’s also great that those repairs don’t cost anything extra on top of the rent. A downside to renting is that you may have to put up with someone else’s taste in decor. It definitely inhibits your ability to stamp your personality and design ideas on the property.
Probably the biggest issue that most people raise when weighing up the pros and cons of renting against buying a property, is the level of comfort and security that you can enjoy. With a rented property, you could be given notice to move and you will have to find somewhere else. When you own your own property, you can decide how long you stay as long as you keep up the mortgage repayments.
Given the choice, many people would prefer to own rather than rent – assuming they can afford to. But it does sometimes come down to personal circumstances and the flexibility that renters enjoy. For example, renting is easier for those who have varied work commitments.
So, is it better to buy or rent a home? Frankly, it depends.
There are definitely pros and cons to both renting and property ownership. Some people are willing to make the sacrifices that hold the key to their own home. Then again, others prefer to let someone else take the strain and just pay the rent. Which one are you?
About the Author: Edward Francis has an extensive experience as a mortgage consultant. Over the years he has built up his own property investment portfolio and he enjoys sharing his experiences online. His articles mainly appear on property investment and real estate blogs.
Photo Credit: Casey Serin
There are so many unexpected costs associated with buying a home, but there’s also the potential for appreciation. I think the rent vs. buy decision needs to be based on your own market, with a heavy dose of personal preference!
In my city, the usual calculators will say that renting is the right choice. That being said, I like to do renovations , so I chose to buy. Looking back I can definitely say that buying was the right move for us financially. We’re still waiting on the bubble to burst in our City (Canada) and it will be interesting to see what happens after that.
Thanks for the info. It’s much appreciated and I’ll definitely be back.
Hi len. I am so happy I found your blog. I found you by accident, while I was doing some research for something else.
I just wanted to let you know that your writing is both entertaining and informative. Keep up the great work!
I totally agree with this assessment. Thank you for writing this.
I loved this post. I want to learn more. Will there be a part 2?
No, sorry. I thought this was a pretty thorough primer.
If you own a house you can make money from it! The first house I bought was snuggled on the side of its 90′ wide by 90′ deep lot. The house was street level but the lot was a hole about 4′ deep which was why the house had been for sale for three years.
Whenever I saved up $45. (I told you it was a long time ago!) I bought a load of fill which the truck drivers would dump into the hole starting right at the street and I would spread the dirt by hand. One of the drivers told me to save my money and wait. When he got paid to remove dirt from lots for new house foundations, he’d dump the fill in my empty property and charge me $25 for a truck load because he didn’t have to pay $20 to the quarry to buy the dirt. Cost to fill the lot ended up being about $1,200. No increase in taxes because we didn’t build anything.
The moving company next door needed parking and they rented a spot for two trucks on my “new” lot for $90. a month. The body shop across the street rented a spot to park one car for $30. a month.
For the next ten years which I owned the house, I earned back the cost of filling the lot (gross before taxes) every year. Since the mortgage was $245 a month (told you it was a long time ago!) I paid half my mortgage payment with rent from the lot. You can’t make your house earn money that way if you’re a tenant.
I also rented out part of the house which paid the rest of the mortgage payment, and ran a small business from the part of the house I lived in. If you own a house and need money you can rent out your garage, rent a parking space, raise a vegetable garden instead of a lawn, run a business from your home, run a couple of yard sales every summer, rent out a room or if you are desperate rent out the house and use one room for yourself.
At the end of ten years I sold the property for double what it had cost (potential buyers loved the level lot with income!). I bought a large, lucrative two family house with a two car garage divided in half. Rented the two units. Rented out the two sides of the garage separately. Paid off the 20 year mortgage in 11 1/2 years and have had a wonderful income stream ever since.
It’s nice to retire with a paid off mortgage and owning your house. Taxes, insurance and maintenance are less than the cost of rent. If you are creative you can still earn an income from your house in retirement.
My 39 year old son is renting out his rural home, (1 property away from Dad), for $1100 over his mortgage payment. He is currently renovating his house in town and will then rent out the upstairs to be mortgage free with an excess of $1000 per month. Taxes are part of the mortgage payment. Yes, he and his wife both work and have interesting lives.
Everyone’s situation is different but I always tell people that if they want to ever retire you have to have a place, any place, paid for. If you have enough retirement investments to cover rent you would have made enough to own a house somewhere along the line. Mind you, we are both tradesmen and between us have everything covered, but for the ham-fisted, youtube reno tips are free.
I have a friend who rents a place with his ex wife. Neither one can afford to live on their own and their situation is precarious…. and they don’t get along. Now that rents are what they are, all previous assumptions were wrong.
Paul S. You are sooooo right! “I always tell people that if they want to ever retire you have to have a place, any place, paid for.” Retirees who own a house outright can live cheaply and comfortably because they pay only taxes, insurance and some maintenance. In this era of inflation money in the bank is eroding 10% a year. With a paid for house you still have SOMETHING of value and you can live in it.