Renting vs Buying: Which is Right for You?

Hey everybody, welcome back to the blog! If you’ve been wondering whether in today’s market it’s better to keep renting or bite the bullet and buy a home, then today’s post is for you. As a realtor and property investor, I would always advise buying over renting for the long-term gain. But today, I’m going to try to remove my realtor bias and share the real pros and cons of each option. Stick around until the end because I’ll break down the cost of waiting to buy if you’re still on the fence.

Building Wealth vs. Convenience

The most common reason you’ve likely heard to buy instead of rent is that by renting, you’re essentially paying your landlord’s mortgage. When you purchase a home, your mortgage payments build equity, contributing to your overall wealth and securing your future. Over time, the value of your home appreciates, exponentially increasing your wealth. Should you choose to sell, that appreciation becomes cash in your pocket.

On the flip side, when you rent, your payments typically cover the landlord’s mortgage, building their wealth instead of yours. However, landlords and property managers usually cover things like lawn care, maintenance, and repairs. For example, if your air conditioner goes out in the middle of summer, it’s your landlord who will have to pay to fix or replace it—a repair that could cost thousands of dollars.

In summary, buying a home builds personal wealth but comes with the cost of maintenance, while renting builds wealth for your landlord but offers the convenience of someone else handling repairs and upkeep.

Stability vs. Flexibility

Another important consideration is whether you’re looking for long-term stability or something more flexible. With a fixed-rate mortgage, you never have to worry about your principal and interest payments rising year after year. This stability allows you to make long-term plans and budgets. Plus, you have the freedom to customize and renovate your home as you see fit, reaping the benefits of your hard work over the years.

Renting, on the other hand, provides much more flexibility. Lease terms can be as short as a few months to a year or two. If you aren’t planning to stay in one place long-term, this flexibility allows you to move without the hassle of selling a home or worrying about a mortgage. This is particularly beneficial if your job requires frequent relocations. However, this flexibility comes with the risk of rent increases at the end of each lease term. I’ve had clients who have seen their rent increase by 50 to 100% over the past few years.

In essence, buying a home offers long-term stability and the chance to make the space your own, while renting provides flexibility but risks rising housing costs.

Potential Tax Benefits

One aspect that’s often overlooked in the buy vs. rent debate is the potential tax benefit. Did you know you can claim a tax deduction on your mortgage interest and property taxes? Each year, your loan servicer will send you a Form 1098 detailing your mortgage interest, which can be a significant deduction, especially in the early years of your loan when most of your payment is going toward interest. Your property tax is also deductible for local and state taxes.

Additionally, you may be able to deduct your private mortgage insurance and mortgage insurance premium or points paid to your lender to get a better interest rate. Unfortunately, there aren’t any tax breaks for renting a home. This one is a clear win for buying.

Monthly Costs

When comparing the month-to-month costs, a mortgage payment, even with current higher interest rates, is often similar to or even less than rent in the Kansas City housing market for the same type of house. As I mentioned earlier, home ownership does come with maintenance and repair costs, but these can be offset by the tax deductions you receive from your mortgage interest payments and the equity you build in your home.

So, how can a monthly mortgage payment with a 7% or higher interest rate possibly be lower than rent? Just like in the first point, when you pay rent, you’re covering your landlord’s mortgage, including their interest rate, maintenance costs, and even some cash flow. This means your rent is actually 100% interest since you’re not building any equity. Over time, this can make renting more expensive on a month-to-month basis compared to buying.

The Cost of Waiting to Buy

If you’ve made it this far and you’re still not convinced that buying is the right option for you, let’s take a look at what it will cost you to wait. One of the biggest objections I hear in the current market is that clients are waiting for interest rates to come down. While I understand this, especially if you’re already locked into a lower rate and looking to upgrade, if you’re currently renting, waiting could cost you more in the long run.

Home prices are still rising in our market. In Kansas City, we currently have a 1.9-month supply of housing, meaning if no new houses were put on the market, all the existing homes would be bought up in less than two months. This low inventory drives up prices. The average home price in the greater Kansas City area is 4.6% higher than it was last year. Even if interest rates drop slightly, they likely won’t fall enough to offset this price increase.

Here are some additional points to consider:

1. Your down payment will increase with higher sales prices.
2. The equity you would have built over the year will not exist because you waited.
3. The amount of interest you’ll pay at a lower rate on a higher price point will increase.

You can check out the numbers for yourself in our free buyer’s guide. Remember, you can always refinance to a lower interest rate in the future, but unless you’re Marty McFly from Back to the Future, you can’t go back in time to buy a house at today’s prices.

Conclusion

So, what do you think? Are you ready to quit paying your landlord’s mortgage and start building equity in your own home? If so, check out our loan page HERE to see what loan programs you could qualify for with our in-house lender. You can also download our free buyer guide for a detailed breakdown of the true cost of waiting.

Feel free to call or text me anytime. Let us be your Kansas City real estate experts.