To Rent or To Buy: A Complete Analysis for Prospective Homeowners

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The question to rent or buy a home is always a great one. There are many calculators on the web that compute all sorts of things, including depreciation, appreciation, tax deductions, etc. But none of these calculators factor in the flexibility of renting and the financial advantages you can have if you rent.

If you rent and take advantage of its perks, you can be farther along the path of financial freedom than if you buy.

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 There Are Many Advantages to Renting

  • You only “buy” the space you need, when you need it
  • You can be mobile and have shorter commutes
  • No maintenance costs
  • You pay only a fraction of the costs for many amenities, including a swimming pool, workout room, party room, etc.
  • You can live close to wherever you want
  • You can choose the neighborhood you want to live in, every year

There Are a Few Disadvantages of Renting

  • You cannot make a lot of noise in a multifamily building
  • You cannot have the pet you want
  • You cannot have the colors you want
  • You do not get to write off interest/rent
  • You can be asked to leave, through no fault of your own

Now let’s look at some factors that you might consider when making the decision to buy or rent.

Factors That Play into the Decision to Buy or Rent

1. Starting a Career and Commuting Costs

When you are just starting a career, especially if it using a science degree, you need to move to different companies if you want to propel your salary. You need different experiences, and each successive company will pay you quite a bit more. It is not unusual to get an average of 10% annual pay increases when you move around for the first five years or so.

Related: 4 Obstacles that Keep Millennials from Buying Their First Homes

Most companies like to hand out 2% raises, and after a couple years, you need to move. If you are renting and find a job across town, you can move closer and get a shorter commute. If you own a home, your extra commute costs will eat up any pay advantage you might get.

Taking into account a 30 minute longer commute vs. renting across the street from work, that is like getting a ~10% pay cut living further to work. And if you factor in the driving expenses, it is an even larger pay cut.

And do not forget, some careers are not the fun and joy you were expecting in college. You might get laid off or go back to school. If you own a home, you could lose it.

If the career is what you want to excel in, spend the extra time at work getting recognized and promoted, rather than commuting. Or start a business. Do not spend your free time on home maintenance or commuting.

Advantage: Renting. You are better off saving your money and buying a home when you have a more stable career.  Use your early energy maximizing your potential to earn, not spend.

2. Starting a Family

Most people out of college are starting to dream the American dream (from the 50s…). They look for a spouse to marry, buy a home and have some children. The fact is most marriages end in divorce (the others end in death, another bad option…).

A divorce for you is a godsend to me, as real estate investor. No one will make the mortgage payments or make any repairs, for fear the spouse will get a better deal. Soon the property is in foreclosure, and I am making money off your misfortune.

Advantage: Renting. Rent a place until you have a more stable relationship.

3. Housing Quality

When you are buying your first home, odds are you do not have much money: not for a down payment or a monthly payment. You will likely buy in a less expensive neighborhood, likely an older home that needs a higher maintenance budget.

You are young and like to work out, so you join a “fitness club.” You are spending so much time and money on home maintenance, you do not have time to go to the “club,” and your health suffers. No one factors in the extra cost of the health club as part of owning, which is included in many nice apartment complexes. They also do not factor in the higher maintenance costs on older first-time buyer homes.

Related: Don’t Cry for Thee, First-Time Homebuyers

Advantage: Renting. You are better off saving your money and waiting until you can afford to buy a newer home with less maintenance. And then buy an exercise bicycle to put in the extra bedroom.

4. The Cost of Crime

When you are younger, you likely want some toys to play with. You do not have much money for travel (remember, you just bought a high maintenance home), so you do things close to home. You have a expensive toys, like a bicycle, or other things in your garage. If you own property in a lower priced neighborhood, the crime rate is likely to be higher than a nicer apartment building in an upper scale area.

Property crimes, such as getting a bicycle stolen, are common. No one factors in the cost of these potential expenses.

Advantage: Renting. You are better off saving your money and waiting until you can afford to buy a home in a lower crime neighborhood.

5. The Cost of Moving

If you own a home, and you purchased it early in your life, at some point it will not be good enough. The changes in your life now demand a different place to live. You may have a larger family, you may want a different school district, you may want a place you can plant a garden. Whatever it is, you need to buy a different place to live.

The fact is, every time you move, some fast talking realtor makes a commission. Some are as high as 7%. There are other selling costs, such as paying the buyer’s closing costs, deed taxes, title fees, etc. It is not unusual to pay 10% of the selling price of the home on expenses.

If you bought in a less expensive neighborhood and now want to upgrade, it is going to cost plenty.

Advantage: Renting. You can move for a minimal cost, especially if you are traveling light. Wait until your life is more established to buy a permanent home.

6. Appreciation

Everyone likes to talk about appreciation when they talk about real estate. Home prices have to go up, as they have done since the first cave was carved out. Historically, real estate price appreciation is slightly over the rate of inflation.

Are prices going up from here? Some analyses say prices may go down, as prices follow income trends. Or prices may go down, as interest rates climb. Or prices may go down, as expenses such as taxes go up.

Who knows what real estate prices will do, but you need to factor in any selling expenses that you must pay to capture that appreciation. You do not get appreciation until you sell. There are still plenty of people waiting for appreciation from 10+ years ago. Will real estate appreciation beat stock market appreciation? It is likely it will not.

Advantage: Renting. You are better off saving your money and investing it in higher yielding investments.

Are you on Team Rent or Team Buy? Why?

Join in the conversation below!


About Author

Eric D.

Eric is a 55 year old, soon to be former, computer professional. He started several years ago to replace his “work income”, with other alternate streams. He is well on his way to retirement at age 56, and is currently making more money at extracurricular activities, than he is working at his full time job. Whether that is Financially Independent, or just old fashioned entrepreneurial spirit, is in the eyes of the beholder.


  1. I do not rent because I can still move because I can rent out my home if I determined that was the wisest move (like my last home). I get a much more enjoyable workout working on my homeand landscaping. Appreciation again is not a huge factor if I don’t have to sell. Crime isn’t a huge issue in the majority of my area. I don’t own a property newer than 1937 which works well for me as many have strong bones and I have gotten quite good at fixing the issues old houses bring.
    The biggest reason I own my own home. It is because I want to. I want the freedom to knock a hole in the wall if I so choose. I want to be able to mold my home to the fashion I see fit. I like the neighborhood feel of other owners who also care about their homes and the neighborhood. I might not make money on the transaction but I don’t make money when I take a trip to Jamaica either. I did it because I enjoyed it and my family enjoys it. In the end it wasn’t a financial decision because it didn’t have to be…

  2. Eric, love your blog posts.

    I was going to argue with this particular post point by point. But I realized that I was looking at this through my particular ‘lens.’ The truth is that you are right. For most people much if not all of the above applies, even though little to none of the above applies to myself, my family, and our set of circumstances.

    The only point I will take issue with is crime. Even living in a border state with a ridiculously high rate of certain types of crime, compared to the national average, living in a free state there are cheap options which you yourself have taken advantage of and they involve taking personal responsibility for one’s personal safety by exercising our rights to protect ourselves and our property with the appropriate tools. That and not owning anything that you cannot afford to either insure (a vehicle!) or lose.

    I always look forward to your common sense and down to earth perspective. Run for office, we need people like you balancing the nation’s books.

    • Thank you for the comment Victor and good words!

      I own my own home too, and I got it in a swap with a business property I used to own. But if you are just starting out, a home is a huge expense that you may never recover from. Being mobile can be the key to an early retirement.

      I did run for office in 1994, I lost. I may have to write a post on that at some point… Probably on my own blog.

  3. samuel sedore on

    I believe this argument has merit and maybe it from a Canadian perspective as our market is different, but I personally don’t see any situation where renting would be more advantageous than buying other than when you lack the capital for a down payment. I mean if you were to rent at 1000 or mortgage for 1200 you would have to have a terrible mortgage and buy in a bad neighbourhood not to end with a least 2400 equity at year end. Also if you plan on moving you could buy and then rent the house for positive cash flow and then perhaps choose to rent a cheaper apartment. that’s just my opinion though, buy in a strong market and due your diligence any property will make you money if know how to spot them. I find the capital gains would far outweigh the chance at preservation

    • Thank you for the comment!

      It is a common myth that you can just move, and rent, and cash flow. Most people do not factor in ‘hidden’ expense of vacancy, property management, and maintenance when they are determining cash flow.

      Also, they underestimate their ability to pay two mortgages whey they buy a new home. No bank will loan money for a new residence unless you can show you can pay both mortgages, or have two years of tax forms indicting that the rental will pay for itself. And then, they discount rents by as much as 25%.

      And, if you may have equity, but if you sell, you are writing a check out at the closing table due to selling expenses. If you rent, you just move. If you are renting yourself at a new place, you are better off staying in your original place if you can.

      There are many people still waiting on appreciation from 2003…

      Great comment!

  4. Hi Eric. I’m new to this and definitely could use some insight. I’ve never owned a home and have only ever rented. I’m in my late 20s and have a good job. At this point, I feel that continuing to rent is just throwing my money away. At the end of a lease, I have no equity. I get nothing except maybe my deposit. Essentially all of the rent money goes into someone else’s pocket. Am I wrong in thinking that with house ownership at least I can recover some of the money i paid on my mortgage when it’s time for me to sell? If I’m going to have to pay to live no matter whether I rent or buy, wouldn’t it be better to buy and at least have some equity? Thanks.

    • Thank you for the comment!

      If you are going to rent, maximize the rental process. Make sure your commute is short, buy only the size of apartment that you need. Only buy the toys you need to live. You do not need a lawnmower, or a rake. And you do not need all the 4-wheelers either.

      Yes, you do not get equity, but you should have a savings on money, and time.

      Then invest the money, and invest the time to making money.

      If you only spend the extra money, and watch TV with the extra, you will be worse off renting. You would be better suited to doing yard work and being too broke to do anything.

  5. Eric I agree with you. I am 52 and my wife and I own our home. She knows that if she passes away that I plan on selling the house and investing the proceeds from the sale into rental property. I could live in a very nice apartment and still put spending money in my pocket. I suggested that she may want to do the same. House maintenance takes time and money.

    • Thank you for the comment!

      I an 54, soon to be 55, and own a home as well. There is a ton of yard work, and other maintenance that keeps people tied up with, and is very expensive. (I am fortunate that I can neglect much of mine…). Most of the time, you want to have a better yard than the neighbors.

      If you devote the extra time in your career, or in a side venture, you may be able to live a better lifestyle as you get older. Or just retire early.

  6. I think we all get caught up in the “American Dream” of home ownership and don’t always factor all those things into the equation. Otherwise, you’d never see people selling their house only a year after they bought it. Someday, I can see us owning properties that we rent and actually renting ourselves so we can be mobile. For now, with a kid in school and at least 10 years to go until retirement, it works for us to own.

    • Thank you for the comment!

      Once you are settled in, it may make more sense to buy. But you can get a head start on your retirement by renting early, and chasing the large salaries. Maximizing the renter experience.

  7. Hi Eric,

    I’m adding a little on to what Tracy said. I’m in my late twenties and my wife and I just purchased our first house. Where we live, we basically were paying the same amount/month to rent versus buying. Now I have a lowish interest rate, am building equity, and can write off interest on my taxes. PLUS, we are planning on subletting one room in our home for almost half of our monthly mortgage payment. We have our renter as long as we would like, which gives us a lot of flexibility. I suppose a lot depends on what things you consider work or not (I like doing home maintenance and yard work) and certainly timing in life is a consideration.

    On top of all of that, I can’t help but think of where I will be after I pay off this mortgage in 20-25 years. I plan to rent it out and manage the property, only having to pay taxes and maintenance costs, a little side income when I’m in my 50s. Perpetual renters don’t have that luxury.

    Do you think folks should just go ahead and buy now (given some favorable market conditions) if they plan on buying in the next 5 years or so?

    • Thank you for the comment!

      There are certainly advantages to renting, especially if you are established and want to stay put. If you are going to maximize the rental process, you need to be prepared to move, and go to where you can make the most money in the shortest amount of time, door to door.

      If you can work remote, that is the best of most worlds.

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