To Rent or to Buy: That is the Question

This is an age-old discussion. There are pros and cons to each. The answer likely differs based on financial situation, geographical location, and housing needs. Let’s look at a few considerations.

House buying has some advantages. The big ones include building equity through principle pay down and 3% annual appreciation. The addition of sweat equity is possible with a fixer upper. Ownership allows for renovations and customizations. Ownership provides perceived stability in housing costs and location. Additionally, having a substantial mortgage is an approach to putting away money in the form of equity.

Owning is not without drawbacks — such as the upfront costs. The traditional down payment is 20%, but more lenders are allowing much less at 3.5% or 5% depending on the loan type. Because mortgages are amortized, most of the payment goes to interest until year 20, which is typically the 50/50 point (half to interest, half to principle). Expect to spend 3-6% of the home’s value in closing costs to the bank and realtor both when you buy and sell. Renovations and repairs come next. Remodeling magazine says you can expect to recoup 60% of what you spend on remodels and renovations, so a new look may do good things for the space, but bad things for the wallet. Maintenance should also be considered at 1% of the property’s value annually. Less for a new house and more for an old one. Renovations, repairs, and maintenance all take time and/or money. Homeowners are responsible for all utilities including electric, gas, water, sewer, trash, internet, cable, etc. Depending on where you live, HOA fees may be a monthly $300 reality.

Renting has its place. Renting is easy to move in and out of because the application process is straight forward This is ideal when taking a job where you question the longevity. The upfront costs are low. I historically paid deposits equal to one month’s rent plus the first month’s rent to move in. Some places require last month’s rent up front as well. Apartments typically have low utility costs because the water meter is not divided, and trash is included. The square footage of an apartment is often less of that than a home, so the electric and gas are often times also more affordable. Sometimes management covers all utilities, but when renting a house, expect be responsible for all utilities. The costs for renovations, repairs, and maintenance are nonexistent. Play your cards right and invest the difference. It definitely sounds good on paper, but the execution is not always there.  

The biggest opposition to renting is the entirety of the costs are sunken meaning you will not see any of them. There is no equity nor appreciation. Rents rise over time, but a mortgage remains status (unless you refinance or move). We all know privacy in the apartment setting is questionable. The maintenance, although governed by a strict set of rules, may be questionable. There is customization, but nothing major. A rental just doesn’t feel as cozy as a house with a green yard and a picket fence out front.

Enough small talk. Let’s see what I did. I have been an apartment dweller for the entirely of my adult life until recently when we took ownership of a small horse that they told us was actually a large dog. After a 6-month search for apartments, I concluded that the vacancy rate was 1-2%, they could be picky, and didn’t want people with pets. So we did the only logical thing we could: we bought a house.

Here is the overview of the house. We were thinking 2-3 bed, 1 bath. This place simply met the most criteria and was not as overpriced as others in the market. This place is nothing special and blends in well in this middle-class neighborhood. The fixtures, flooring, countertops, doors, etc. are all low end and borderline rental grade. This home has had regular turnover and shows the remnants of style changes through the years. My favorite was the bubblegum pink and pine green room with vertical rose gold sparkling wall tape. Anyway, this is what the monthly damage looks like for two people (and a large dog) with 800+ credit scores on a conventional loan