Owning vs. Renting: What’s Better for Your Wallet?

Explore whether renting vs. owning a home is more affordable.

Financial gurus have long debated the issue of whether renting or owning provides the better bang for your buck. Certainly, owning seems like an attractive option, especially when mortgage interest rates are at low levels. Conversely, renting is still a popular and affordable choice for many people. In fact, 36% of U.S. households are renter-occupied, according to the National Multifamily Housing Council.

Discover the pros and cons of renting vs. owning that can help you determine which option is better suited for you.

Main Differences Between Renting and Owning

Owning vs. renting — both are big decisions. The bottom line is that renting and owning are quite different. To start, renting is a bit more cyclical while owning can be more stable. Owning also often requires a much longer commitment than renting.

Ultimately, you will be committing to reside in your chosen dwelling for months or even years. For many, it boils down to dollars and cents, but you should also consider other factors, such as location.

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How Renting Works

The Federal Trade Commission defines the processes of renting as paying an owner of an apartment or house money every month to live there. Most of the time, the person renting the dwelling signs a lease, which is a written agreement that states how long you will be living there, how much you will pay in rent, the frequency of the rent payment and rules you must follow. It should also state what happens if rent is paid late and outline any other costs you might have to pay.

The owner or landlord might also require you to pay a security deposit, which is an additional one-time payment, that they will hold until your vacancy date. Often, these funds will be refunded at the end of your lease — and can be rolled over upon renewal of a lease — but the funds can also be used by the landlord to recoup any loss due to damage to the apartment for which you are culpable or for extended vacancy in the event you break your lease.

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Ownership Basics

Owning differs from renting in that in addition to occupying the property, you hold the rights to that property. You have the right to enjoy the property and even encumber or mortgage the property. This also means you don’t need permission to paint the walls or get a pet. The county where the home is located usually records ownership of the home via a deed, which is a legal document indicating that you are the owner of the record for that piece of property.

When you own your home, you typically are not paying rent. But you might have a mortgage payment and other costs associated with living in the property. Some examples of other costs include real estate taxes, property insurance and mortgage insurance premiums. For condominiums and some planned communities, owners might also pay homeowners association dues.

Find Out: Condos vs. Houses — Which Is the Best Investment? 

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Is Renting Better Than Owning?

Although renting might seem less advantageous than owning, several strong reasons could persuade you to rent instead of own.

First, renters are relatively protected from obsolescence. Because rental agreements have limited terms, in the event that a property is deteriorating, offers fewer amenities than comparable properties or has maintenance or management issues, you can look elsewhere for another place to live once your lease expires.

Another great reason people choose to rent is that they do not have to pay property taxes. Property taxes and homeowner’s insurance are the responsibilities of the owner. And although you typically have to pay your first month’s rent and a security deposit in advance, renting often comes with fewer upfront costs than buying.

Lastly, your rental payment is static — unless your lease states otherwise, your rent does not change for the term of your lease. This provides a consistency that helps renters budget their expenses month-to-month.

Learn More: The Average Rent in Every State

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Advantages and Disadvantages of Owning a Home

People often associate buying and owning their own home as part of living the American dream. Homeownership can be very rewarding, but it does come with its own share of obstacles. Before rushing into a new purchase, carefully consider the advantages and disadvantages of owning your own home.

Here are a few pros to homeownership:

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  1. Building Wealth: One of the biggest advantages to owning your own home is that it’s a way to build wealth over time. In 2016, the average homeowner’s net worth was $231,420, compared to the average net worth of a renter, which was $5,200. The reason is that the homeowner is building equity over time, whereas the renter is not.
  2. Enjoyment and Opportunity: You can take pride in the fact that your home is uniquely your own. When you own your own home, you can mold and shape the space to fit your personal tastes and interest. If you want to redesign the kitchen or replace the fixtures in the bathroom, that is your right.
  3. Affordability: Homeownership can be affordable. With a fixed-rate mortgage, your monthly principal and interest payments will remain the same over the course of your loan term. Loans typically last 30 years, and you can refinance to extend your term based on your own financial position. This can make budgeting and planning much easier, as rents can, and often do, increase over time to combat the rising costs of living and inflation.
  4. Tax Benefits: Lastly, homeownership can offer some lucrative incentives come tax time. You might be able to deduct the interest you pay on your mortgage or even your annual real estate taxes. Speak with a tax advisor to confirm what sorts of savings you can expect based on your situation.

Meanwhile, here are some cons to homeownership:

  1. Maintenance Costs: Homeownership comes with many out-of-pocket expenses. You are responsible for the maintenance costs such as a new roof, plumbing repairs or landscaping. These costs can really add up.
  2. Utility Costs: Homeowners are responsible for utilities — such as water, gas, electricity and cable — whereas renters might have those costs built into their rent. In some areas, homeowners also have to pay for garbage collection services.
  3. Mortgage Payments: Unless you have enough money for the full purchase price, you’ll have to go through a lender to get either a mortgage or a home loan. Although fixed-rate mortgage products offer predictability, adjustable-rate mortgages result in fluctuations in your payment. And missing a mortgage payment can severely affect your credit and could impact your ability to obtain new credit in the future.

Read More: Most Affordable Places To Buy a Home

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This article has been updated with additional reporting since its original publication.

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About the Author

Sylvie Tremblay is an Ontario, Canada-based writer specializing in medical, health pet care and lifestyle topics. Since starting her writing business in 2010, she’s worked with SFGate.com, the Houston Chronicle, the Arizona Republic, mindbodygreen and Healthy Directions Magazine.