A black man laughs while explaining something to a laughing black woman while they sit on a grey couch in an apartment they are renting.

Is it Better to Rent or Buy?

Updated January 4, 2020 . AmFam Team

Some say that renting is “throwing away money,” but you may actually be worse off buying a home before you’re ready. Here's why renting can be better than buying.

To rent or to buy? It’s a question you might’ve asked yourself — and one you should take the time to really consider before committing to one or the other. Whether it’s better to rent or buy comes down to your personal financial situation. So, if you’re feeling the pressure to start house shopping or are unsure if renting is for you, we’ve got a few things for you to consider before striking out on your own.

Is Renting Throwing Money Away?

You may have heard the saying that renting is “throwing money away,” but that depends on your perspective. Yes, buying a house, paying a mortgage and building equity and credit have a lot of advantages and can be great for many people. But you’ll also have to contend with home repairs, improvements and other large costs that renting helps you avoid.

If you’d rather live in a rental than deal with the process of buying and owning a house, then it’s not throwing money away to choose an apartment or other type of rental unit. And buying a house before you’re financially ready can actually hurt you in the long run. So, if you dream of owning a house one day but can only afford to rent, that’s okay. You can always save up for a down payment while you’re in your apartment.

The Benefits of Renting Over Buying

There are several benefits to renting over buying, and a lot of them involve the convenience to you as a renter not being responsible for things like maintenance, having lower utility bills and a simplified rent bill every month rather than a mortgage. Here are just a few of the benefits of renting vs. buying:

Lower utility bills

Generally speaking, apartments are smaller than houses and require less electricity and gas to heat and cool them. And in some instances, landlords may subsidize some or all of your utilities, either covering them entirely or paying a percentage. Compare this to homeownership, where 100 percent of the utilities are your responsibility, including internet, water, electricity and gas.

Lower insurance costs

Typically, the cost of renters insurance is much lower than homeowners insurance. This is because renters insurance won’t cover things like damage to your dwelling, as that’s generally on the landlord to fix. The difference in cost is significant — renters insurance typically costs around $15 a month, while home insurance can cost hundreds of dollars per month.

Simplified costs

With a mortgage bill, you usually have multiple costs associated with a home, including property taxes, homeowners insurance and private mortgage insurance. Some of these things may even be on separate bills that make it far more complicated to keep track of and budget for, not to mention utility bills and other monthly costs associated with homeownership. With rent, the only separate bills you might have are utilities because all of the costs associated with rent get lumped together in one simple bill, aside from your renters insurance bill.

Flexibility to move

One of the advantages to renting is that you’re not on the line to improve the space for sale purposes — or do any selling of the space at all. You just have to make sure it’s clean and that nothing’s broken before you move out, which you can generally do every six months or annually, depending on your lease. And because apartments and other rental units are typically smaller than a house, you’ve got less stuff, so it’s easier to move it all to a new place.

More location options

Houses take up a lot of space on a single lot, so you’ve got more location options when you look for an apartment. It’s typically easier to find a place to rent closer to the action of a bustling downtown — or closer to work — than it is to find a house to buy, especially when you consider the amount of apartments vs. the amount of houses in the world.

Smaller down payment

When you put money down on an apartment, it’s usually a month or two’s worth of rent in advance, which also acts as the security deposit. With a home, experts recommend putting at least 10 percent of the home’s cost down when you buy, a number that can equal tens of thousands of dollars as opposed to one or two.

No maintenance responsibility

Because your landlord is responsible for the maintenance of the building and its units, if something breaks down at no fault of your own, your landlord is usually obligated by law to replace it. Check your state’s tenant laws and, if possible, have a lawyer look over your lease before you sign it to make sure you’re not responsible for any appliance, plumbing or other maintenance in your new rental.

No mortgage payment interest

While your rent payments may go to helping your landlord pay off their mortgage, your entire rent payment is typically going to things that actually benefit you, like utilities and building maintenance. Paying interest on a mortgage payment is basically just profit for the bank — it doesn’t contribute to your loan, and in some cases, you could end up paying more on the loan than the house is worth because of the interest.

Should You Rent or Buy?

The choice between renting and buying is a big one, especially when thinking long-term. While buying a home might seem the most financially responsible option, you should take into account all the costs associated with homeownership before house hunting.

For instance, consider the responsibility you’ll have to maintain the house itself, including appliance repair or paying your home insurance deductible if you need to re-roof after a bad storm or fix burst pipes. You’ll also be responsible for the yard work and all the costs associated with that, like lawn mower maintenance and fuel. If you’re in a financially stable place, buying might be a great option for you, but if you don’t have the money saved up or the time to properly maintain your home, renting is probably the best way to go.

Need Help Finding Your Perfect Home?

If you’ve decided buying a home is the right choice for you — that’s great! Check out our first-time home buyer’s guide to learn what to expect when purchasing your first home. If you’ve decided renting is right for you, connect with your American Family Insurance agent (Opens in a new tab) to make sure you’ve got the right renters coverage in place to protect what matters most in your new apartment, duplex or rental house.

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