Rent vs. Buy: What Should You Do?

After years of dramatic twists and turns, the housing market appears to finally be dipping in the direction of favoring buyers, according to experts, thanks to cooling inflationary pressures and a more optimistic outlook on the economy in general. But questions persist — particularly for potential homeowners grappling with the rent vs. buy quandary. What if the market goes south again and prices skyrocket further? What effect will intensifying global instability have on U.S. housing? And the bottom line: Is it better to rent or buy right now? 

If you’re contemplating a move, read on for a look at the rent vs. buy dilemma — including some tips on how to decide which option is best for you. Remember: This decision is about more than where you’ll sleep at night. It’s about your financial future, your lifestyle, and much more. 

Rent vs. Buy: Which One Is Better?

Here are three considerations to help you start thinking: Is it better to rent or buy?

Budgeting: Rent vs. Mortgage

• Rent: Renting typically involves a fixed monthly payment, which can make budgeting straightforward. But you’re essentially paying for the right to live in the property, with no ownership stake or equity-building over time.
• Buy: Mortgage payments can sometimes be comparable to rent, but a portion of each payment goes toward owning the home, which builds equity — meaning the paid-off portion of your mortgage, which you (theoretically) get to keep. Keep in mind, though, that mortgage payments can fluctuate if you don’t have a fixed-rate loan, and additional costs like property taxes and homeowner’s insurance can add up (see: Florida).

Moving: Flexibility vs. Stability

• Rent: The flexibility of renting makes it easier to relocate if your job or life circumstances change. In the world of rent vs. buy 2024, you’re not tied down to a property, and you can often move with just a few months' notice. (But read your lease carefully before you make any moves!)
• Buy: Homeownership offers stability. You’re not at the mercy of a landlord’s decision to sell your house or raise the rent. And owning a home can provide a sense of permanence and community. But then again, you’ll have a little (or a lot) less freedom, because selling a home and moving can be a lengthy and expensive process.

Personalization: Cookie-Cutter vs. Custom

• Rent: There are usually limitations on how much renters can personalize their living space. Major renovations or even minor changes often require the landlord's approval, which can make it difficult to truly make the space your own. And if you rent vs. buy, home modifications may not be allowed at all. Check your lease to determine whether you’re free to paint an accent wall or make other aesthetic changes to your rented home.
• Buy: As a homeowner, you have the freedom to renovate, remodel, and personalize your home as you see fit. From knocking down walls to painting the exterior, you can create a space that truly reflects your taste and lifestyle.

Q: Do millionaires buy or rent? A: In a word, both. “Is it cheaper to rent or buy?” is a question super wealthy people don’t need to consider. They may purchase a home for family stability, tax breaks, and a long-term investment, and keep a rental or two elsewhere to satisfy the need for flexibility, convenience, and visits to other cities.

When you’re considering affordability, whether to rent vs. buy a home isn’t just about the up-front and monthly costs

Is It Cheaper To Rent or Buy?

When you’re considering affordability, whether to rent vs. buy a home isn’t just about the up-front and monthly costs; it’s also about the long-term financial implications of each option. Let’s break down the key financial factors that can help you determine whether renting or buying is the better choice for your budget.

Maintenance: Homeowners Pay the Price

• Rent: When you rent vs. buy, home repairs and maintenance are the landlord’s responsibility — arguably one of the most significant financial benefits of renting. From leaky faucets to malfunctioning appliances, the renter is not on the hook for unexpected expenses. You just make a phone call. (Chalk one up for renting in the rent vs. buy a home contest.)
• Buy: As a homeowner, it’s all on you. Whether you’re dealing with routine maintenance like lawn care or major repairs like replacing a roof, expenses can add up quickly. Budgeting for these ongoing costs can sometimes make homeownership more expensive than renting. Still, you have control over how things get fixed, which means doing repairs right, no matter the cost, or going for the quick-and-easy temporary solution — it’s your choice.

Up-Front Costs: Renting Is Less Expensive At First

• Rent: The initial costs of renting are relatively low. Typically, you’ll need to pay a security deposit and perhaps the first and last month’s rent — and even more if you have a fur baby in the family. All these costs are relatively manageable compared to the significant financial commitment involved in buying a home. On the other hand, rent can actually be more expensive than a mortgage payment in some high-demand areas. And keep in mind that as the economy fluctuates, rent prices move with it — and landlords have a tendency to increase costs annually.
• Buy: Purchasing a home requires a substantial up-front investment, usually in the form of a down payment — which can be anywhere from 3% to 20% or more of the price, depending on the type of loan you secure. Closing costs, inspection fees, and other associated expenses can add thousands of dollars to your up-front cost. But the predictability of a mortgage payment can provide a sense of stability over time. And there are also some good incentive programs available for first-time home buyers, which can ease the sting of that up-front bite in your wallet. Still, when it comes to the dilemma of rent vs. buy, home prices most definitely come into play.

Building Equity: Homeowners Enjoy the Long-Term Benefit

• Rent: If you rent your home, your payments are a recurring expense with no return on investment. You’re essentially paying for a place to live — but you don’t gain any equity or earn any kind of financial stake in the property.
• Buy: Each mortgage payment helps build equity in your home. Over time, as you pay down your mortgage and your property value (hopefully) increases, you’ll have an asset that can contribute to your long-term financial stability. When you’re ready to retire, for instance, you’ll have a bit (or maybe even a lot) of profit to invest in a new home. And in the meantime, you can also borrow against your equity for things like home improvements — ready to turn that dusty basement into a fun family room?

Opportunity Cost: A Down Payment Locks Down Significant Dollars

• Rent: Renters retain the flexibility to invest money where they choose rather than tying it up in a down payment. And for some, investing in stocks, bonds, or other financial vehicles might provide better returns over time compared to the appreciation of a home.
• Buy: The money you shell out for a down payment is locked into your home, but it also serves as an investment. If your home appreciates in value, you could see a substantial return on your initial investment when you sell. But as you’re considering all the financial angles of the rent vs. buy challenge, it’s essential to be realistic about what that money could have earned in other investments — and whether that opportunity cost makes sense for your specific circumstances.

Tax Breaks: Homeowners Get Better Deals

• Rent: About two-dozen states offer some form of tax breaks for renters — but when you’re weighing the benefits of rent vs. buy, 2024 tax guidance doesn’t necessarily make it easy. The rules are different (and complicated, in cases) depending on the jurisdiction. So be sure to do your due diligence and enlist professional help if a tax advantage is a make-or-break factor for you.
• Buy: Homeowners, on the other hand, can take advantage of several tax benefits. Mortgage interest and property taxes are often deductible on federal income tax returns, which can lower your taxable income. And if you sell your home and make a profit, you may qualify for capital gains tax exclusions — another financial perk of homeownership.

Q: What’s the difference in moving costs if you rent vs. buy? A: No matter where you land on the rent vs. buy dilemma, there will be costs if you move. The average fee to make a local move with a two-person moving team is about $2,200 — but if you’re moving more than 100 miles away, you’re looking at a much higher price tag. It all depends on how far and how much you’re moving.  You can make the entire process easier and more economical with PODS, a flexible option for both moving and storage. PODS delivers your container straight to your driveway, where you can pack and load it on your own schedule. If the market decides to dance again and you need to downsize to a smaller, more affordable rental, you can store some of your things in a secure PODS Storage Center until you’re ready to purchase your forever home.

Renting can give you access to community perks that might be too costly to maintain as a homeowner.
(Source: SKYHouse Buckhead via Facebook)

Rent vs. Buy: When Renting Is Best

You’re In a Short-Term Work Situation.

If you anticipate relocating within a few years because of a job change or employment circumstance, renting is often a better option. The costs associated with buying and selling a home — closing costs, realtor fees, and potential market fluctuations, as we’ve discussed — can make short-term homeownership financially unwise.

You Have Limited Financial Resources

When your financial situation doesn't allow for a substantial down payment or the ability to cover unexpected maintenance costs, renting offers a more viable and less risky option. Renting typically requires a lower initial investment, at least in the beginning, and maintenance responsibilities fall on the landlord, not you.

Q: Is rent-to-own a smart option? A: In the rent-to-own scenario, a renter has the opportunity to buy the home they’re renting after a predetermined period, with a portion of the paid rent typically applying toward the eventual down payment. This arrangement can be beneficial for people who want to buy but need time to save money or improve their credit score. But it can also be risky. If you change your mind and decide not to buy the home, or you can’t qualify down the road for a mortgage, you may lose the extra money you’ve paid. As with every business transaction, carefully review the contract, do your due diligence, and get professional help if you have questions.

Your Current Income Is Fluctuating

Market Conditions Are Unstable and Uncertain

In areas where real estate markets are volatile, renting can be a safer bet. If housing prices are high or likely to drop, renting allows you to avoid the risk of buying at a peak and losing money on your investment. In a nutshell, renting provides the flexibility, freedom, and time to wait out market fluctuations, giving you the opportunity to buy when conditions are more favorable. And if housing prices drop, interest rates rise, or economic conditions change, you avoid potential financial losses tied to homeownership.

Amenities Are Important to You

Renting can give you access to community perks that might be too costly to maintain as a homeowner. Many rental properties include amenities like pools, gyms, and security services, all included in your rent. These conveniences can enhance your lifestyle without the burden of upkeep and additional expenses.

Managed properly, owning property offers your family long-term financial security and a place to call home for years to come.

Rent vs. Buy: When Buying Is Best

Here are a few scenarios that suggest buying is the right choice for you. 

You Want Long-Term Stability

If you plan to stay in the same location for many years, buying a home can be more cost-effective. Over time, mortgage payments build equity, and as a homeowner you’re protected from rising rent costs. Owning your home also provides stability, easing the path for you to settle into a community and customize your living space.

Q: Is it worth renting vs. buying? A: This is subjective, of course, depending on your financial situation, lifestyle, and goals. Renting offers flexibility and lower up-front costs, but buying can build equity and provide long-term stability. Evaluate your needs and the market conditions in your city and nationally, and consider your future plans and financial objectives. Then determine the best choice for you in various rent vs. buy scenarios.

You Appreciate DIY and Personalization

If you want the freedom to renovate, remodel, and personalize your living space, buying a home is the better option. Homeownership allows you to make changes that reflect your style and needs without seeking permission from a landlord. Whether it’s adding an extension, landscaping the yard, or redesigning the interior, owning your home provides the creative control that renting doesn’t offer.

You Want To Build Long-Term Wealth and a Lasting Legacy

Over time, as you pay down your mortgage and property values rise, your equity increases. This can serve as a financial asset to leverage for other investments, or as a nest egg for retirement. If you want to create a legacy for your family, buying a home can provide a sense of permanence — and a tangible asset to pass down to future generations. Managed properly, owning property offers your family long-term financial security and a place to call home for years to come.

You’ll Gain Community Engagement 

Homeownership often fosters deeper community ties — which is not to say that renters aren’t involved in their communities. But if you’re seeking a sense of belonging and want to invest your time and treasure in neighborhood activities and community organizations, buying a home can help you establish roots. 

The 5% Rule is a simple formula that helps potential homeowners figure out whether they should rent vs. buy.

What Is the 5% Rule and the Rent vs. Buy Calculation?

You can thank Canadian YouTuber Ben Felix for this handy way to evaluate whether you’re financially equipped when it comes to a rent vs. buy situation. Here’s how it works:

• Multiply the cost of a home you like by 5%.
• Divide that number by 12.
• This figure is your “break even” point.
• If the rent for a similar home is below that break even point, it’s smarter to rent. If it’s higher, buying is the way to go.

For instance: A home in Austin, Texas, is listed for $539,100. Applying the 5% Rule, we multiply that price by 5% —- which equals $26,955. Then divide that by 12 months of the year, and your mortgage would be about $2,246. Rent for a one-bedroom space in downtown Austin is averaging $3,150. So this Austin consumer would be better off buying, keeping in mind maintenance, taxes, and other expenses. And don’t forget the cost of doing business — interest rates, fees, and the like.

Q: Should a single person rent or buy? A: Home prices are obviously the main factor for most people sorting through the rent vs. buy conundrum — single or not. As we’ve mentioned, the housing market is finally calming down a bit in 2024, which makes the prospect of going solo into the buying world a bit more palatable for singles. In fact, almost half of all U.S. home sales are ending up below the owner’s list price. But apartments are going fast in the meantime — NYC is experiencing the most intense apartment bidding war of the past two decades. So singles should take the same approach as marrieds and other statuses: Do your research and figure out what the best situation for you is financially, socially, and over the long term.

If you’re ready to ditch the rental life for your very own fixer-upper, check out the PODS Blog for some great tips on surviving the chaos of remodeling, ideas for planet-friendly renovations, and renovations that can help boost your bottom line. 

Shannon Jacobs is a Tampa-based freelance writer and frequent contributor to the PODS Blog. She has lived in Atlanta, the Berkshires, and Nashville, but always returns to the warmth of Florida’s Gulf Coast.