The Pros and Cons of Renting vs. Buying a Home for Millennials

For many millennials (and everyone else), the decision to rent or buy a home can be a difficult one. Both options have their advantages and disadvantages, and it can be tough to know which one is right for you. You can read what I learned from buying my first property here. Here are some pros and cons of renting vs. buying a home to help you make an informed decision:

Pros of Renting:

More flexibility
Renting gives you the freedom to move around without the commitment of a long-term mortgage. This is especially useful for those who are unsure about where they want to settle down. 

No maintenance or repair costs 
When you rent, any maintenance or repair costs are the responsibility of your landlord. This can save you a lot of money in the long run. New homeowners often underestimate the cost of repairing things that they never had to be on the hook for. Just budgeting for the mortgage often catches people off guard. Homeowners need to anticipate that there will be things that break so it’s important to account for these future expenses.

Lower upfront costs
Renting usually requires a lower upfront cost than buying a home, as you don’t have to worry about a down payment and closing costs. Home purchases often require a significant amount of capital to receive financing for a home and can take a while to save up. 

Access to amenities
Many rental properties offer amenities such as pools, gyms, and other facilities that you might not be able to afford if you were buying a home. It’s often included in the rent or charge a small amount as an amenity fee. Although some homeowners have these in managed communities with HOAs, it’s often more expensive. 

Cons of Renting:

Limited control
As a renter, you don’t have as much control over the property as you would if you owned it. You may not be able to make any major changes or upgrades without your landlord’s permission.

No equity
Renting doesn’t allow you to build up equity in a property, meaning that you won’t be able to benefit from any potential increase in property value.

Rent increases
Depending on your rental agreement, your rent may increase each year, making it harder to budget and plan for the future. There are examples that I’ve heard of properties increasing rent on existing tenants by 50%! 

Pros of Buying

Building equity
When you own a home, you are building equity with each mortgage payment you make. This can be a great investment for the future. It’s important to mention that the equity buildup is very slow during the first few years as mortgage payments are amortized. The debt paydown portion of the mortgage payment slowly increases as the interest portion decreases. 

Tax benefits
Owning a home can come with tax benefits, such as mortgage interest deductions and property tax deductions. If the home eventually turns into an investment property, landlords can take advantage of depreciation.

Freedom to customize
As a homeowner, you have complete control over the property and can make any changes or upgrades you want. This means you can make your home your actual home! Have you thought about having that white cabinet kitchen with marble countertop? You can do that with your home!

Cons of Buying

Higher upfront costs
Buying a home usually requires a significant down payment and closing costs, which can be a barrier for some millennials. 

Responsibility for maintenance and repairs
When you own a home, any maintenance or repair costs are your responsibility. This can be a significant expense over time. An HVAC replacement can cost as much as $7,000! 

Less flexibility
Owning a home is a long-term commitment, and it can be difficult to move around if you decide to sell or rent out the property. Some homeowners would feel uncomfortable renting out the house if they don’t remain in the area. This is when a property management company is beneficial.

Increased costs over time with insurance and taxes
Property taxes and homeowners insurance is not something you would need to worry about as a renter. As a homeowner, property taxes can increase annually which will increase your overall mortgage payment if your taxes are in escrow. Homeowners insurance can also increase yearly if the overall rate increases in the area. 

What You Should Consider

Ultimately, the decision to rent or buy a home is a personal one that depends on your individual circumstances and financial goals. 

I will flat out say that buying your primary home shouldn’t be timed like it could be for an investment property. The house that fits your criteria perfectly could come on the market any day and it would be a missed opportunity once it’s gone. The real estate market does not follow the same timeline as your personal situation. 

The valuation of the home only matters when you sell or refinance. As long as you can manage the mortgage payments and the additional expenses as a homeowner, you should feel comfortable buying your home regardless of the economic scares as long as it fits your personal situation. 

Consider your current lifestyle, your long-term plans, and your budget before making a decision. Both options have their benefits and drawbacks, so it’s important to carefully weigh your options and make an informed decision.