Taryn Brady
Math 1030
Final Project
Renting vs Buying a home
Buying a home can be an exciting experience for anyone. When someone makes the
decision to buy or rent a home they must consider the advantages and disadvantages of each.
There are many advantages to buying a home. However, it is not for everyone and buying varies
from individual to individual. In some cases you just might be better off continuing to rent your
home. As it is, more people are leaning towards renting, but this could change in the near future.
At some point in your life, you will ask yourself the question, “Is it better to rent or to buy?”
and the answer is almost always: “It depends on the state of housing and your circumstances.”
After 2008, when the U.S. economy bottomed out and the housing bubble burst, the standard
belief that it’s always better to own, rather than rent, was turned on its head. When home values
plummeted and many people found they were upside-down in their mortgages (owed more than
the home was worth), the American dream of owning was shattered and renting was suddenly the
desired living style. That’s why the “Rent vs. Buy” question requires people to examine all the
elements of the decision, since where we live is an emotional decision as well as an economic
one. Here’s one way to break down the issues:
Pros of Renting

Lower cost upfront – As a renter, you will be required to pay first and last month’s rent
and perhaps a security deposit for a pet. If you buy, you will be required to pay a hefty
down payment, plus costs for the home inspection, closing costs and other potential
items. It’s a difference of a few thousand dollars if you rent compared with tens or even
hundreds of thousands of dollars if you buy.

Uncertainty in your career -- If you think you might need to move in the near future, or
are considering job changes where you could be relocated elsewhere in the country,
renting affords the freedom to come and go as needed.

No maintenance – When the pipe leaks under the sink, you don't head to your nearest
hardware store, you head for the telephone and call the landlord.

Incidental expenses – Occasionally, the landlord might pick up costs for utilities such as
water, sewer, garbage, and in some cases heat and hot water as well.
Cons of Renting

You may have no control over the fluctuation of your rent.

You might be limited in decorating the home or apartment.

You are subject to the landlord’s decisions.
Pros of Buying

Build equity – When you pay rent, you don't own anything. When you pay a mortgage,
you increase your degree of ownership in your home with every payment.

Submit tax deductions – You can deduct mortgage interest as well as your property
taxes.

Have creative control – You like dozens of pictures on the wall? Well, hammer away -they are your walls now. Like the color mango? Go ahead and paint. Wish you had
another room? Go ahead and add one.

Maintenance choices – If you own a home, you can decide how to approach
maintenance, either doing it yourself or picking your own contractor. If you live in a
rental, you are at the mercy of the landlord when repairs are made and how.

Pride of ownership – It might not make sense for everyone, but having a home you own
is still the ultimate American Dream.
Cons of Buying

You Have to Pay for Your Own Maintenance. As a homeowner, you must spend time
and money keeping your home in good repair. You need to set aside funds for unexpected
expenses, such as appliances that break, a service contract, or the need to replace your
windows.

You Must Pay Property Taxes. Property taxes can go up, making your home less
affordable.

Your Home Could Lose Value. As many people have learned the hard way, there’s no
guarantee that your home will increase in value over time.

Homeowners’ Insurance Is Mandatory If You Have a Mortgage. As a renter, renter’s
insurance is recommended but not required. Your lender requires you to insure your
home, and typically you have to pay those insurance premiums along with your mortgage
payment.
In buying a home the primary advantage is that you actually own it. You can do whatever
you want with it. People today have problems saving for their future. However, when they buy a
home, the money they put down for a down payment is an investment. When the person sells the
home they get back the down payment and the amount the property has increased in value. While
a home can be a good investment – and let's face it, you have to live somewhere – many
financial experts caution against purchasing a home simply as an investment. Also, keep in mind
that the dynamics of real estate markets across the U.S. vary greatly. This reality requires each
consumer to be fairly experienced, not only in terms of their own finances, but about all the data
for the market in which they are looking.
When looking at the advantages of renting it is easy to see the disadvantages of buying for
some people. Even though you don’t get the money back that you put into it, renting could be a
more satisfying option for some. This is because renting allows for flexibility. The person can
move wherever as soon as there lease is up. Renters may see buying as a reduction in lifestyle,
moving to a smaller place, and perhaps a less expensive neighborhood. For example someone
who rents an apartment enjoys how the complex keeps up the area and all the amenities it has to
offer, and it is in an upper class part of town. However, when they buy they look at all the cons
such as, they have to do maintenance themselves, and move to an area they don’t particularly
like to fit their price range.
To put this in a more quantitative perspective, I used myself as an example. My monthly
income is roughly $2800 after taxes. Right now I am looking at a house in Salt Lake City that is
$140,000. Now with a VA loan I am not required to pay a down payment out of pocket, but for
research purposes, let’s say I paid 10% down, which is $14,000, making my total house price
$126,000. I can multiply the total price of the house by 0.05% and get roughly $6,500 as an
estimate of maintenance costs. If I did a 30yr fixed mortgage at an interest rate of 3%, my
mortgage payment would be $531.22 a month. Now to incorporate monthly homeowners
insurance at roughly $350 and mortgage insurance at $56, and taxes at $90. My monthly
payment changes to $1,027. Throw in monthly utility bills like water, trash, electric, etc, my
rough total payment is about $1300.
I could always rent an apartment in Salt Lake City in the same area? The average rent for that
area is around $800-900. Assuming the landlord pays none of the utilities, I would pay roughly
the same amount of money for bills as the house, making my total payment about $1100-1200.
So you’re paying about the same either way, but with buying, you are putting your money
towards something you will eventually own. Also, you don’t have to take 30yrs to pay off your
home that is just a maximum of how long it can take. I think buying would be worth it.
Renting is the right choice for those who prefer a more affordable, flexible, and stress
free lifestyle. When renting an apartment instead of owning a home, the renter has the luxury of
spending money on other investments, traveling, children, or other necessities. Renting an
apartment is less risky and more affordable. When renting, rather than placing all your money in
one investment, a renter can invest in many stocks, bonds, and mutual funds. The average person
cannot afford to invest in a home as well as other types of investments. Renting is more
affordable because on average a person would expect to spend 1% to 2% of their house’s value
annually on maintenance. Experts suggest setting aside 5% of the purchase price to cover
maintenance. This does not include home improvements or insurance, decorating or landscaping
you decide to do or property taxes. Also most first time home buyers cannot afford to pay a
professional to fix something when it breaks. With homeownership the owner is purely paying
interest for the first five years. According to Suzie Orman, author of four consecutive New York
Times bestsellers, if a person cannot afford to save up at least a ten percent down payment, you
are not ready for homeownership.
So which is better? It just really depends on the person’s situation, financial especially. If
your mortgage payment would be triple the amount you would pay for rent, it might not make
financial sense for you to buy. Buying a home is a major decision that shouldn’t be taken lightly,
but when faced with rising rent and low mortgage interest rates that make purchasing more
affordable, you should take the time to consider the pros and cons of both renting and buying.
Long-term homeowners, even those whose homes lost value during the recession, can build
wealth that can be used to fund their retirement or pay for college. In general, housing values are
becoming a much better investment than they were just a few years ago. And if you're looking to
settle down, it's probably best to seal the deal. As long as you can comfortably afford your
housing payments and are emotionally prepared to commit to homeownership, buying a home
can be a smart financial move.