Is it Cheaper to Own Or Rent A House?

Is it cheaper to own or rent a house? This financial debate depends on your time horizon. Does your next living situation look like a long-term fix? If not, can you still take a buy-and-hold approach to the next home you plan to occupy? 

There is no “one size fits all” answer to the buying versus renting debate. Your real estate needs are as unique as you!

Short-Term Considerations

A short-term time horizon amplifies the startup cost of ownership. The buy-in to own is higher than renting, but the financial commitment of homeownership comes with benefits. Homebuyers can expect to pay for an appraisal, title search, closing costs, and any number of justified expenses when purchasing and closing on a property. According to the National Association of Realtors (NAR), buyer/borrowers can expect to pay upfront costs equal to at least 2% of the home’s value.

In contrast, the upfront cost to rent is usually less, consisting of a security deposit plus the first month’s rent. Renter’s insurance is optional but recommended and you could choose to insure as much or as little of your property as you’d like. Renters can also choose to insure their liability for situations like personal injuries and/or property damage.

The cost to furnish your space is also something to consider, and renting does not necessarily guarantee pre-furnished living. Personalized design choices, like paint and carpet, are the responsibility of a homeowner while renters can usually rely on their landlord to cover these expenses (but with little or no choice in the matter).

Moving costs are not inherently higher for an owner versus a renter.

The cost to maintain your property is yours when you own while most maintenance costs are the responsibility of the landlord or property manager in a rental situation. Renting is not a free-for-all, however, since the landlord will eventually have to pass-through increasing maintenance costs in the form of higher rent.

Long-Term Benefits

If you can stay put, or if you can keep ownership of a property for several years or more, owning pays-off. Interest over the life of a loan holds constant in fixed-rate mortgages and has a cap with adjustable-rate mortgages. Eventually, the home can be paid-off completely, leaving only taxes, insurance, and maintenance costs.

On the other hand, rents increase with inflation and may also increase in response to market factors. Tenants have little to no control over their future cost of living.

Also, owning means building equity that will increase your net worth. Someday, you can get your money back if you sell the home. Real estate provides a hedge against inflation and has historically been a stable investment according to the Federal Housing Finance Agency (fhfa.gov). With renting, your landlord gets your monthly payment plus the equity.

The Whole Picture

As the decades pass, owning is cheaper than renting. You’ll have more control over your financial picture when markets fluctuate.

Finally, consider this: The average net worth of a homeowner is 44X higher than that of a renter. If you can stay put, it makes financial sense to own your home.