On this episode of 2 Frugal Dudes, we’re talking about the pros and cons of owning vs. renting.
Benefits of Homeownership
Owning a home can be a gratifying feeling. However, it doesn’t work for everyone, including Sean. Sean enjoyed owning but made the choice to switch to renting for the first time ever.
Some of the pros of homeownership include:
- A mortgage forces savings through building equity. This is great if you’re bad at saving money.
- You can handle your home as you want, without having regulations put in place by a landlord. If you want to paint, you can paint. If you want to build a shed, you can build a shed.
- You have the option of turning your home into a rental property so that you can build equity and an investment while living elsewhere.
- Eventually your investment could pay off, as you could pay off your mortgage and reallocate your expenses to reach your long-term financial goals.
- Homeownership can give you more square footage for your dollar.
- Homeownership goes toward your tax deductions so that you get a deduction on the mortgage interest.
- A homeowner who pays their mortgage on time will have a higher credit score than a renter.
There are a lot of cons to consider with homeownership as well. For example:
- There are a lot of upfront costs on top of the purchase price during the closing process that you need to keep in mind. For example, paying a real estate agent. Closing on a home can cost 10% of the overall costs.
- Yes, you have equity, but it’s in the ground. If you need to use that equity you will have to pay interest and you could lose a lot of money and extend your mortgage loan.
- A never-ending list of maintenance and repairs, as well as the cost associated.
- You can make mistakes when signing your mortgage that will ultimately impact your long-term financial goals.
- Finding and paying for homeowners’ insurance can be challenging and costly.
- It can be challenging to become a homeowner, considering you often require a 20% down payment.
- Property taxes.
- Understanding interest rates and knowing when to refinance. Do you need a fixed-rate mortgage or an adjustable-rate mortgage? Do you know?
Pros of Renting vs. Owning
Some of the main benefits of renting vs. owning include:
- There is a lot more flexibility with renting vs owning. You can sign a lease for a year then move, travel, and change with minimal fanfare.
- With renting, you don’t have to worry about maintenance and repairs. All maintenance and repairs are the job of your landlord, and if they aren’t done promptly you might save on rent.
- Renter’s insurance tends to be more affordable than homeowners insurance, as you’re covering your goods rather than your home in its entirety.
- Ammenities: depending on your rental, you may have access to a gym or pool without the maintenance.
There are also cons of renting vs owning:
- As far as investments go, you can pay your rent forever vs. paying off a mortgage.
- Restrictions for personalization and actions in your home.
- Landlords can visit at any point.
- Dealing with lease renewals and rent increases.
- The amount of money being thrown away in renting vs. owning is about the same and lifestyle factors play a role in your decision.
- Keeping up with modern living in rentals.
- Security deposit.
Closing on a House
Closing on a house is one of the most stressful aspects of buying and selling a home. There are a lot of expenses attached, which detracts from how much you actually take away when you sell your home. Be sure to have a candid conversation with your real estate agent to get an understanding of all the hidden costs of closing.
- 2FD 005: Thinking Before You Buy
- 2FD 004: Cut Back on Your Transportation Costs
- 2FD 033: Taking the Frugal Leap with Mrs. Frugalwoods
Disclaimer: Kevin and Sean are not professional financial advisors. Do not take any advice they give without first speaking with a professional and performing your own due diligence.