Rental Living vs. Buying a House

by Ann Johnson

Prior to the turn of the last century, the American dream included homeownership. Many consumers viewed homeownership as an investment in the future. A home was typically a family’s largest purchase. After property values dropped, more people began weighing the pros and cons of homeownership versus renting property.

Ease of Acquisition

Getting into a rental property is far easier than purchasing a home. Unless the homebuyer has cash, she must qualify for a home loan, which requires good credit scores, a solid work history and money in the bank for a down payment, plus contingency funds. There are upfront fees for inspections, appraisals and loan fees. While it is possible to move into a rental within days after locating a property, it typically takes at least 30 days to move into a home after the seller accepts an offer.

Repairs

When renting property, most repairs are the responsibility of the property owner. If the air conditioning breaks down, the renter does not have to figure out how to come up with the money to pay the repair bill. The homeowner must budget for possible repairs and maintain the property. If the water heater breaks down he does not call the landlord, he calls the plumber.

Property Use

Even a property owner must follow certain rules regarding the use of his property. For example, he cannot board a horse in his backyard if the zoning disallows it, nor can he paint his house a bright pink if he is a member of a homeowner’s association that regulates external paint colors. Yet, the homeowner has far more rights regarding the use of his property, when compared to a renter. He can freely decorate his home, invite his friends over to spend the night and doesn’t have a property manager invading his privacy.

Anchored to the Home

Renting instead of homeownership is better suited for the person who doesn’t intend to stay at one location for a long time. The lease binds the renter to the property but for a limited time. When the homeowner wants to move, she must either sell or continue to maintain the property. This might involve renting out the property.

Tax Deduction

Buying a home versus renting can be a tax savings for some homeowners. The taxpayer deducts the amount of interest he pays annually on his home loan from his gross income, lowering his tax liability. At the end of the year, when tallying up housing expenses and tax savings, the homeowner may or may not end up with more cash in his pocket than if he had been renting.

Market Trends

Depending on the local rental market, housing market and interest rates, a person might pay more or less in monthly payments to purchase a house, as opposed to renting a comparable property. Yet, the homebuyer who purchases a house at a fixed interest rate, for a 30-year mortgage, will know what his house payments will be in 20 years, while the renter has no real idea what his monthly payment will be to rent a similar property during that same time. At the end of the 30 years, the buyer will own the property, while the renter will still be renting.

References

  • "Modern Real Estate Practice"; Fillmore Galaty, et al.; 2006

About the Author

Ann Johnson has been a freelance writer since 1995. She previously served as the editor of a community magazine in Southern California and was also an active real-estate agent, specializing in commercial and residential properties. She has a Bachelor of Arts in communications from California State University, Fullerton.

Photo Credits

  • Comstock/Comstock/Getty Images