Buying vs. Renting a Home

Barry Berman, Managing Director, First Republic Bank
May 31, 2022

  • In addition to providing a safe and secure place to live, homeownership offers a chance to build home equity, but there are a few things to consider before buying your first home
  • Buying real estate involves saving for a down payment, as well as paying for home maintenance and repairs, property taxes and other costs you may not have to pay when renting.
  • However, owning your home also provides more freedom than renting, allowing you to customize your living space.

While becoming a homeowner can be a smart financial investment, it’s important to consider whether it’s the right decision for you.

Homeownership brings an opportunity to build equity and wealth, as well as the freedom to customize your space to your taste. But it also brings with it responsibility for repairs, property taxes and other costs that renters generally don’t need to worry about. As a result, you should consider several factors of homeownership and renting, including costs, goals and lifestyle, to make the most informed choice for you.

Is it better to rent or buy a home?

The decision to rent or own a house, apartment, condo or other dwelling is a personal one. Both offer several potential advantages and disadvantages, and you should weigh all the pros and cons as you decide whether you’re ready to buy or if you may be best served by continuing to rent.

As you weigh the decision, consider the following:

How Do I Know If Renting Is Better for Me? How Do I Know If Buying Is Better for Me?
I want to live in different cities or states in the next few years. I want to stay in one location for the foreseeable or long-term future.
I don't want to be tied to living in one place for more than a year or two. I want to stay in one home and create connections in my community.
I want someone else to take care of my property and home maintenance. I want to take ownership of my property and home maintenance.
I don't mind not being able to customize my space. I want the freedom to customize my space as I see fit.
I have the financial means to afford renting a house. I have the financial means to afford buying and maintaining a home.

Tallying up your “yes” answers can give you insight into whether you might be ready to buy. If you feel that you’re ready to stay in one location, and have the financial stability to take control of property ownership and home maintenance, consider setting a goal to buy a home. If you still crave flexibility or plan to move, renting may be the ideal solution right now

Deciding to rent a home

Renting a home has its benefits and limitations, both of which you should consider when making decisions regarding homeownership.

Benefits of renting

Renting, generally, offers more flexibility and less responsibility than owning a home. The benefits of renting may include:

  • The ability to move more freely than with homeownership, allowing for easier upgrades or relocations
  • Fewer housing expenses, as some landlords may cover utilities
  • Little or no home maintenance costs, as these are generally the responsibility of the landlord
  • Financial stability in knowing how much rent is owed each month, as monthly rent will not change while under an existing lease contract
  • Protection from large increases in rent, if the tenant’s unit is subject to rent control or stabilization

Limitations of renting

Renting also comes with several potential downsides compared to homeownership.

These drawbacks may include:

  • The risk of a significant rent increase when renewing a lease agreement, if the unit is not subject to rent control or stabilization
  • No potential to build equity through renting
  • Less ability to customize your home, as modifications generally require approval from the landlord

These downsides mean that renting may not be the best option for everyone at every stage of their life. However, you may eventually find that renting no longer suits your situation best, and consider making the move to homeownership.

Deciding to buy a home

Making the decision to buy a home is a personal one. Those considering making the move to homeownership should consider the benefits and drawbacks of owning.

Benefits of buying

Buying a home, whether it's a condo, house or apartment, has several advantages, including stability and a sense of community that one might not achieve through renting;

The benefits of homeownership also include:

  • The ability to build equity in a home by paying off your mortgage
  • The potential to earn money.
    • Housing is a speculative investment, and your property and home value may increase over time, allowing you to sell your home for more than you paid for it.
  • The ability to customize your space.
    • While major home upgrades and modifications may require a building permit or approval by a homeowners association (HOA), homeowners can generally adapt their living space to suit their tastes.      

Limitations of buying 

While buying a home brings with it significant advantages, there are some potential drawbacks to consider, as well.  

These may include:  

  • Limited ability to move or leave suddenly; relocations may become more complex than if you were renting 
  • Higher up-front costs, including a down payment and closing fees  
  • Greater responsibility, as owners are responsible for home maintenance and repairs 
  • The risk of your monthly mortgage payment going up when interest rates change, depending on the terms of your mortgage 

Cost factors of renting vs. buying a home 

Potential homeowners need to consider the financial impact of buying versus renting when deciding whether to purchase their first home. Comparing the differences between the two can inform you about the many costs factoring into either choice.  

  Renting a Home Buying a Home
Fixed or Variable Housing Payment Rental payment, usually paid monthly or weekly Fixed-rate mortgage payment or variable-rate mortgage payment, which includes mortgage interest
Maintenance/Repair Costs No or minor costs (e.g., lightbulb replacement) Wiring, plumbing, roofing, heating or cooling, lawn care, painting, floor repair or maintenance and more
Upfront Costs Security deposit, first and last month's rent, broker's fees (up-front costs may vary by landlord and/or broker) Down payment, closing costs and post-loan liquidity (appraisals, survey costs, title insurance, etc.)
Utility Costs Heat, electricity, water, internet and phone (the landlord may cover certain utilities) Heat, electricity, water, water heater rental, internet and phone
Equity Value Does not build equity Builds home equity as you pay off your mortgage
Tax Deductions A renter with a home office may be able to deduct a portion of their living expenses Qualifying home mortgage interest, mortgage insurance premiums, home office expenses, real estate taxes; points paid to lender, if applicable

In general, homeownership comes with higher cost factors as opposed to renting. In addition to the costs listed above, homeowners may have to pay property taxes, homeowners insurance and condo or HOA fees. Renters generally avoid these fees, although some landlords may require tenants to purchase renter’s insurance.  

Of course, homeowners can also benefit financially from the opportunity to build equity through homeownership, an option not available to renters. A portion of each mortgage payment goes toward building equity, which may offer financial benefits in the future: For example, if you plan to downsize in retirement and live off the proceeds from the sale of your home.

The right decision for you depends on your unique financial situation, goals and aspirations.

The bottom line 

The choice to buy or rent is a personal one. Owning a home brings with it the opportunity to grow your wealth as you build equity in your home and offers stability to families looking to remain in one location for years.

On the other hand, continuing to rent may be the more advantageous option for households who need the flexibility to move easily, those who prefer not to be responsible for home maintenance and those still saving for a down payment on a home.

As you make your decision about which option makes the most financial sense for you, research your local housing market — as well as the rental market — to gain insight into the financial reality of renting or owning in your area.

When you’re ready to buy a home, a banking partner can also help you understand the options available to you and support you at every stage of the journey — from saving for your first down payment to upgrading to your dream home.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. This information is governed by our Terms and Conditions of Use.