Pros and cons of buying vs. apartment renting

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As I mentioned earlier this year, we are going to be buying our first house this year and will be taking advantage of the $8000 tax credit. In our most recent newsletter from our apartment complex, they provided us with some renting vs. owning propaganda. It is pretty funny hearing the rent vs. buy arguments shift since the housing market challenges started.

House So, I thought it would be fun to share a bit of the arguments they made for renting…

Pros of apartment renting (from apartment newsletter)

  • Maintenance, hassle-free living
  • Easy to relocate
  • Wealth is not tied up in a single investment
  • Apartments often are located near transportation, employment, retail, and entertainment
  • There isn’t a guaranteed tax advantage. True the IRS allows the deduction of mortgage interest, but for some homeowners, they might not be able to deduct more than the standard deduction.
  • Don’t have to pay for maintenance, taxes, and insurance.
  • Short-term home-ownership can be expensive. So if you might be moving in the near future, renting may be a better option.
  • While buying a house does force you to “save”, historically the returns from investing in the stock market are much greater than investing in real estate.

Apartment renting does have some perks

As a reluctant renter, I have to admit that I have enjoyed not having to deal with any of the maintenance issues. If the sink is clogged – they fix it. If the door handle breaks – they fix it. If the grass needs mowing – they mow it. They even change our furnace filter every 3 months! I know that all this is included into the monthly rent payment, but it is still a nice feature.

The ability to quickly relocate is also an added benefit – if you are a bit more of a nomad. Other than that, I have to disagree with some of the other arguments they made for renting.

Current market conditions that make it a great time to buy

A few reasons to buy independent on current market conditions

pros and cons of buying Automatic savings plan

This is the reason that you can even hear your gas-station attendant tell you that you are “throwing away your money” by renting. It seems to be the one piece of financial advice that everyone seems to remember. While not entirely true, I still think it is a good rule of thumb, only because the majority of Americans are terrible savers. My thinking is, if a 25-year old gets a 30-year mortgage, they will likely have a paid off house (hopefully sooner) at age 55. So even if they haven’t saved much for the future – at least they won’t have to be concerned with a house payment.

Of course the other benefit is that over that 30 years the home value will likely appreciate. Now the returns probably may not be as good as the stock market returns over the 30-year period, but the average American is more likely to pay their mortgage each month than invest extra money in the stock market.

Tax deduction

This is nice, but since the IRS standard deduction is so high, unless you are paying a lot of mortgage interest, this might not be as huge a benefit as some people make it seem.

Stable payment

This one is pretty minor, but assuming you have a fixed rate mortgage, your payment should stay the same. This provides a nice protection against inflation. Renters on the other hand, will watch their monthly payments rise as inflation rises.

An investment that you can live in

As far as an investment, even in light of some of the tremendous home value declines, the house still provides the benefit of being able to live in it. As much as I love investing in stocks or mutual funds, they will never be able to provide a benefit like this.

It’s yours!

One of the things Linda and I are most excited about is the ability to customize our house. Apartment living is full of rules and restrictions of what you can and can’t do. I am excited to have the freedom to paint the walls, landscape, and install a new faucet – if I would like.

What do you think? What are your reasons for renting or buying?

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8 Comments
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  1. I am younger and could not afford to buy right now. Also, I recently moved and am not looking into a permanent location yet because I could easily move states again, and want to. No rush in settling down. If I was older and wanted to settle and could afford, I don’t see why not. It becomes an asset then and you could always rent it out.

  2. Karrie

    I have recently been thinking about this (renting vs buying) in regards to my situation. I am wondering what you think about this, since I have always had difficulty thinking long term and thinking about financial matters.
    I am just over 30 years old, and have been “declared” disabled and receiving social security for a little over 2 years now. I have a medical condition that has slowly but consistently worsened over the last ten years, but has remained a mystery to the doctors. As that relates to this financial issue, to me it means I do not have a reliable sense of how I’ll be doing in five, ten, or twenty years; the probability is that I will be as bad as I am now or worse. It has, however, reliably kept me in the same town for the last six years, and will probably keep me here for the forseeable future.
    As I’ve been crunching my little numbers (or, rather, utilizing financial websites that help you), it seems that over 20 years, I would save some money, but that the financial risk is front heavy.
    What are your thoughts? Do you think it is a possibility or that it is fiscally sound to attempt to own if you are, and probably will continue to be, below the poverty line?
    I hope this is not out of line to ask a question here as a comment.
    Thank you for your always interesting and informative articles.

  3. We’re renting and will probably be renting for another year or so. We briefly considered buying, thanks to the tax credit, but we just don’t have enough cash on hand to afford a decent down payment and closing costs without tapping our emergency fund.

    We thought long and hard about it, and it just seems like we can’t pull it off. We’re going to keep on saving for now.

    In my area, renting is MUCH cheaper than having a house. Our rent for a 2-bedroom 1.5 bath place is $770/month plus electric, which is about $80 on average.

    A house would be mortgage, property taxes, insurance, gas, electric, water & sewer, trash, and maintenance. We calculated those costs to be around $1300 to $1600 per month, depending on the place in our price range. Yikes.

    When I lived in Indiana, there was a renter’s tax credit for the state where you could deduct a portion of your rent. That was nice.

    Good luck with your move!

  4. While I enjoyed this post, there is definitely one thing I want to point out – and you did touch on it, however; I read an article a while ago over at Get Rich Slowly, it was a guest post (http://www.christianpf.com/pros-and-cons-of-buying-vs-apartment-renting/). Basically, what the article says, in two sentences, is that having a mortgage for the single reason of taking advantage of a tax credit sounds a lot better than it is. The tax credit isn’t a dollar for dollar reduction, its not like paying $15,000+ a year in interest is going to get you 15k back from the government, it’s simply a deduction on your earned income – so you’re paying 15k in interest, and getting a fraction of what it’s worth “back.” I’ll take the 15k any day.

    Also, to all considering buying: This year is definitely the time to buy if you’re a first time home buyer. This is $8,000 in FREE money from the government (not a deduction, from your taxable income). Personally, I am not a first time home buyer – but if I were, I would definitely try to take advantage of the credit this year. I would even do so if it required “tightening up the belt” for a little while in order to replenish a savings account. I am definitely not saying to buy more house than you can afford, or not to do your homework but, if you find a deal – I would jump on it. This summer, house prices are going to be low low low, money is cheap (low interest rates), plus $8,000 back from uncle Obama.

    That turned into a winded post, but it’s just my $0.02 (more like $1.02 I guess, haha).

    Keep up the writing, I enjoy reading your post – it’s nice to read a financial blog that has Christ at it’s roots.

    God Bless.

    • Jim good points – and just to clarify, in your first paragraph, you were referring to the deduction of mortgage interest from taxes -correct? And as far as it being a great year for buyers, I couldn’t agree more…

  5. I hadn’t planned on buying a house, since we hope to move closer to family at some point if/when a good job for my husband becomes available. However, we were looking at moving from our 1-Bedroom apartment when our lease was up at the end of July since we were expecting a little one in August. We probably would have considered making it work for a little longer in the 1-Bedroom, but they raised our rent by more than 10%. So we were looking at 2-Bedroom apartments. Minimum for a 2 Bedroom, 1 bath apartment in a decent area was about $750 a month. This would only allow us to save $50 a month towards a down payment. That’s IF the rent wasn’t raised the next year. I didn’t want to be stuck renting and unable to continue to save for a down payment, so we started to look at houses we could afford now (and be able to put 20% down). This would be a house of about $100,000 or less.

    After some searching, we found a “starter” home, 3 bedroom, 1.5 bath, 1100 square feet that was in our budget in a family-friendly neighborhood in a great school district. The neighborhood is literally right next to brand new $350,000-$650,000 McMansions. We got a 30 year mortgage so our payments would be low “in case” something happened, but we have set up automatic payments that will have our mortgage payments paid off in less than 15 years and even with that extra payment and property taxes and insurance, we’re only paying $675 a month. The extra $100 or so every month is now going into a home maintenance fund for future repairs.

    I’m happy to say that it IS a buyer’s market if it’s cheaper to buy than it would be to rent. And I have a huge backyard for a garden or to play with the kids. Mowing the yard every couple of weeks is no big sacrifice. And my husband even learned how to install a dishwasher!

    Also, even if we do move in the next year or two, we would probably still break even, even with closing costs and real estate commission. Our house appraised for $15,000 more than what we paid for it. It was a bank-owned home, and they just wanted to get rid of it as fast as possible.

  6. I think that renting was commonly thought of as “throwing money away” in the past; however, the volatile state of our economy is pushing more people to rent. Even some homeowners are packing up and moving into rental properties in order to save some money. The fact that they can save money will ensure that they can become homeowners again when the markets rebound. I think more people should consider this option instead of staying in a house they can’t afford. Most times this causes foreclosure and can actually decrease your chances of homeownership in the future.

    Leah

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