Home Rent vs. Buy Calculator


Having a home to a lot of people is part of fulfilling the American dream. On the flip side, it can also be someone’s worst nightmare. Buying a home is one of the biggest moves a person can make. It’s best to consider the pros and cons before you decide to buy a home.

As you think about purchasing your new home, you will have many questions and concerns. You may ask yourself the following questions: Do I really have to buy a home? Will my income grow? Am I going to stay in a home long enough to benefit from the purchase? Do I want the responsibility? Do I have enough in savings? Deciding to purchase a new home is a big financial move.

Because it’s so important, always look into positive and negative attributes. The information in this article will position you to analyze the pros and con of having a home pertaining to your personal desires, general financial position, and future plans.

Advantages and Disadvantages of Owning a Home

It’s very important to evaluate how a home purchase would affect your finances and lifestyle before deciding to buy. It’s wise to take into account the pros and cons of owning property before making a decision like this.

Pros of Buying

The Mortgage Interest Deduction

The top real estate tax deduction is when you are able to deduct 100% of the interest you paid on your mortgage in that year. This means that the interest you pay on your current mortgage is tax deductible. Moreover, you have the potential to save thousands of dollars, especially during the begging of your loan term.

Stability and Freedom

One of the main benefits of buying a home is that no one can tell you to leave the property, as though you are renting. Renters have little to no input when it comes to how long they can stay over the lease term. Having your own home gives you the freedom to renovate and decorate when you want to.

It’s an Investment and Asset

After you purchase a home, it becomes your own personal asset. You have the freedom to sell it or rent it out to possible tenants. After you pay your loan off, you own the property with no strings attached. The only thing you have to consider is your property tax and homeowner’s insurance. If you buy a home with cash, then you are already one step ahead in the game.

Homes Typically Increase In Value, Build Equity, and Provide a Nest Egg For the Future

Having an asset that increases in value over time is very appealing. While prices of homes can increase as time goes by, they also have the potential to have periods where properties fall in value. Always remember that owning a home is a long-term investment.

Cons of Buying:

Interest and Fees Over Time

The fees and interest that you pay during the loan term are quite costly. Don’t let the changes in the interest rate to frighten you during the term of your loan. This super important for those who have a variable interest rate or when their fixed-rate expires.

Maintenance

If you own property, you are responsible for maintaining it. For instance, if you’re having plumbing issues, you have to either fix it yourself or call the plumbing company to fix it and pay the bill. You also have to pay for other things such as roof repairs, HVAC work, leaks or cracks, window repairs, other things that are quite expensive. For these instances, owning property can be very pensive to maintain as a whole.

Less Financial Freedom

This is the drawback of having the majority of your money placed into your property. On the other hand, if you choose to rent for the rest of your life, you have the option to spend elsewhere instead of saving for a deposit. You can use the extra money for travel, entertainment, study, or even your own business. Moreover, you also have the opportunity to make other investments that have the potential to yield greater returns.

Lack of Mobility

When you own a home, there’s no way for you to just up and leave. If you ever want to relocate, you have to sell your house or rent it out. Depending on the housing market, it can take you months to years to accomplish this.

Housing Market Uncertainty

Over time, you will more than likely sell your home. Most experts will tell you that the average person moves 8-10 times in their lifespan. You housing investment have the potential to be higher or lower than what you bought it for. However, you’ll have to pay the difference out of your own expense if you have lack of equity to cover real estate agent commissions and closing costs in addition to paying off your mortgage.

Advantages and Disadvantages of Renting a Home

Pros of Renting:

Frees Up Your Savings

If you choose to rent your whole life, you don’t have to spend your savings on a deposit and other expenses with owning a home. Moreover, you have the opportunity to free up your cash to explore other options. If you invest your money in the right way, you can yield a greater return on investment than buying a house. Remember to think everything through regarding your investment goals and the strategies you choose.

Also, you may be at a point in your life where you don’t want to see all of your savings and monthly income goes towards a mortgage and a deposit. For instance, is traveling and living abroad your true desire?

Low Maintenance

Remember, when you own property, you are responsible for all repairs. When you are renting, when things need fixing, you don’t have to worry about it. If there is ever a problem, all you have to do is call the landlord. Overall, it’s the landlord’s responsibility to tend to the property.

Flexibility

If you rent, you have better flexibility and mobility. When your lease expires, you have the option to go from place-to-place as you please. If you were buying and selling a property, you have less flexibility to relocate if you desire to.

Diversify Your Investments

If you purchase a home, most of your money will go to this single asset. Ask yourself whether or not you are content with having all of your savings in one investment.  Renting gives you the chance and opportunity to diversify your money into other investments. In doing so, you are also, spreading the risk.

Mobility

If you know you have the travel bug, renting is more than likely the best option for you. It’s even better when you don’t have a long lease term so you can just get up and go as you please. If you have property, your property has the potential to be for sale for many years if the housing market for your location is down.

Cons of Renting:

Paying For Someone Else’s Asset

If you are renting out property, you are paying the landlord’s mortgage and property tax on their behalf. The landlord has the right to sell the property at any time. In a nutshell, you are financing their investment. As stated above, if you improve the assets of the property, it’s benefiting the owner and not the renter in the long run.

Rental Costs Are Ongoing

According to previous data, the price of renting will increase as inflation continues to rise in property prices. Depending on your location, loan repayments can be higher than renting out property. However, the amount of loan interest that’s on your home decreases as you pay the principal off.

The average person pays off their mortgage within 30 years. Even though they have to maintain their property, homeowners have the freedom live in their home without worrying about making monthly payments.

Keep in mind that if you choose to rent for the rest of your life, you will pay rent continuously. When you are retirement age, it’s more of a challenge to find a lot of money to pay rent each month. Moreover, it may be hard for you to adapt to rent increases.

No Forced Savings

An individual having a mortgage pressures him or her to save. The lender requires you to make your monthly payment on your mortgage each month. In addition, this asset has the potential to increase as times passes.

However, renting can cause a person to spend without saving accruing investments.

Other Factors to Consider

Is the rental property a good investment? There are guidelines for real estate investors, such as the 1% and 2% rule. These rules determine whether or not a property is good investing in.

The other rules for purchasing rental property are the 1% rule, the 2% rule, and a home’s gross yield. These are fairly simple formulas by the way.

The 1% rule basically states that you purchase a rental property if each month covers 1% of the price of the purchase. For example, if you purchase a rental property for $200,000, the minimum amount you need to make back is $2,000. It can be easier said than done.

The 2% person rule is not as forgiving. In the example mentioned below, you need to receive $4,000 per month in rent, which is nearly impossible in certain situations. Especial in today’s times unless you find a good price on a foreclosure or some other good deal. Moreover, these kinds of properties need an ample amount of TLC to be up to par to rent out for such a premium.

Last but not least, there is a home’s gross yield. You can calculate this by taking the property’s annual rent and dividing it by the purchase price. For example, if your price of purchase is $300,000 with an annual rent of $24,000, your gross yield is 8%. If your yield is 8% percent or higher (especially in the double digits) you are having great success.

Furthermore, it’s not wise to depend on a blanket rule to determine your buying decision. It’s important for you to consider the real-time mortgage rates, maintenance, expected home price appreciation, the desire to own vs. rent, etc.

In order to get a greater depiction get out your handy dandy calculator rather than going with the rent vs. buy rule of thumb.

If your property of choice doesn’t even meet these rules, that doesn’t mean it’s not a good choice. To tell you the truth, overpaying for a property makes more sense as pertaining to the situation.

Ready to Buy?

Overall, it’s time to make moves after you analyze the advantages and disadvantages of buying and renting so you know if investing in property is the best decision for you.

In order to position yourself for the American dream, make sure that you are prepared beforehand such as a good deposit and other funds to cover additional fees. Having a loan pre-approval is also great to have so that you’ll know your cap. Having this information will make the process of getting your dream home that much sweeter.