C’mon, the fight between buying vs. renting looks about as fair as Kanye West calling out Taylor Swift (“Yo renters, I’m really happy for you and I’ma let you finish, but, home ownership is one of the best investments of all time”), when it really should look more like Jay-Z’s “Takeover” vs. Nas’ “Ether.” A respectable fight by both parties, but a consensus winner in “Ether,” or in our case, home ownership.
As with most things that ignite much debate and provoke varying votes of confidence (i.e. Biggie vs. Pac, Kobe vs. LeBron, Lil’Kim (circa 1996) vs. Nicki Minaj, etc.), the debate over renting vs. buying a home has both pros and cons.
Unfortunately, the voice of the cons for renting gets far more attention than the pros, at least until now. Call us playing devil’s advocate, underdog cheerleader, or just advocates of a fair fight, but here are a few renter pros to keep in mind when questioning renting vs. buying:
- Little to no capital at risk: Now more than ever, the requirement to put down a sizeable down payment and/or closing cost (as much as 20 – 25% of purchase price) has made the “American Dream” look more like a 2010 MTV VMA nightmare (see Will.I.am). Yes, more times than not a home purchase is a worthwhile investment, and this becomes even truer the longer you own the home and establish more equity (percentage of ownership). However, although there is NO equity in renting, renters can seek some solace in knowing there is little to no equity to lose either (aside from maybe a renter’s security deposit). All investments don’t reap profits.
- PMI: Also known as Private Mortgage Insurance or what we at Urban Professor refer to as “Pimpin’ Many Individuals,” this is the peace of mind that benefits lenders from potential defaulters of loans. PMI, is a common and expected insurance tab for homeowners that come to the table with less than 20% down. Those who didn’t stack enough chips, weren’t ballin’ as much as they thought they were, or, in kinder mortgage language, potential homeowners that require mortgage loans in excess of 80% of the home’s purchase price. Though PMI makes it possible for those who have less than 20% of a home’s purchase price to still purchase a home, this monthly addition to your mortgage is no lightweight expense and can make it quite difficult to sustain reasonable monthly payments. Think of it as an extra cell phone bill every month without unlimited text messaging, don’t front, you know how those can add up.
- Taxes & maintenance: Speaking of extra payments, the king of all “sleeper” or add-on payments is, you guessed it, Uncle Sam and those taxes on real estate. Ever seen a house, then saw the purchase price broken down into monthly payments and said, “I can afford that,” only to later realize that it was more out of your league than trying to holler at Beyonce at a Jay-Z concert? Well, you’ve just been introduced to maintenance fees and/or real estate property taxes and these can throw anywhere from a few hundred to over a $1,000.00 (yes, a stack) in additional monthly payments to your monthly home bill. Ouch! Even though there are income tax deductions associated with real estate property taxes and none for maintenance, these tax deductions may not be much, if at all, for some home owners. You guessed it; renters typically pay neither taxes nor maintenance.
- Hit em’ with the flex: The ability to “hit ‘em with the flex,” as in flexibility of relocation, shouldn’t be understated. Usually with home ownership, a homeowner cannot make a cost efficient relocation to another city or new home without first selling their current home or finding tenants (a separate potential nightmare). Conversely, renters have far more flexibility to relocate without such concerns, as usually their biggest concern may be in breaking a lease, a sometimes costly but often manageable option, similar to going separate ways with your high school sweetheart as you head off to college
Ultimately, there is much to consider when buying and renting. There are many tools to help in this decision process. The above tips are but a few pros of renting, however, there are surely cons such as rent increases, no equity, no tax benefits, landlord rules, security deposits, and did we mention no equity to name a few.
Doing your research is a must, as one thing that isn’t as much of a debate is that a home purchase can be both one of the best purchases and most expensive purchases you will ever make. And unless done wisely, you better “get rent or die buying.”