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Buy or Rent?

When you are deciding on a place to live, your first major decision is whether to buy or rent. This decision is influenced by a number of factors, including financial ability to obtain and repay a mortgage loan, your family size, your lifestyle, and the housing available in your community.

The question of buying versus renting is an individual decision. Before making a choice, consider the following advantages and disadvantages.

Ownership

Advantages

  • The opportunity to find housing to meet your special requirements.
  • Personal control over use of the property.
  • The increasing home ownership rights (equity) you gain as the mortgage on the property is paid. The longer you own property, the greater the ownership rights.
  • You can deduct mortgage interest and property taxes from federal and state income tax returns.
  • A wide choice of location is available.
  • Ownership is an investment that provides a hedge against inflation as a result of increased property value over time.
  • You have the freedom to renovate and/or remodel the house as you like and can afford.
  • Ownership promotes a sense of security, especially for the retirement years when income normally drops.

Disadvantages

  • High initial investment costs, including sales transactions and moving.
  • The cost in time, money, and energy to maintain and improve your property.
  • You are committed to one location for an extended period of time if any equity is to be realized.
  • The variable costs of taxes and insurance.
  • The possibility of change in a community or neighborhood, which could result in decreased property values.
  • Money you invest in home ownership is not easily transferable to other uses when needed.

Renting

Advantages

  • You have a small initial investment and low transaction cost. Unlike the purchase of a house, there are no closing costs involved in renting property. Usually renters are required to pay in advance one month's rent and a security deposit.
  • You have a minimum financial risk.
  • Your monthly living costs are easy to predict. Rent payments usually include the costs of repairs and maintenance to the unit. The responsibility of the building owner for maintenance and repairs also means less energy and time are required of the renter.
  • You can change housing relatively easily as your needs and resources change. Also, if you are looking for a smaller place to live, such as a studio or a one-bedroom apartment, you find a greater selection among rental units.
  • Recreational facilities, and/or other special services, often are available in rental units.
  • When you rent, you have an opportunity to learn about different neighborhoods in your community (before becoming permanently settled).

Disadvantages

  • Through monthly mortgage payments, as a homeowner, you gradually increase your proportion of equity. As a renter, you do not gain any equity.
  • If you rent, you cannot claim mortgage interest and/or property taxes as deductions on your federal and state income taxes. (Such deductions, in effect, lower your cost of housing.)
  • Part of your rent is applied to your landlord's overhead. These costs include maintenance, repairs, taxes, staff, and services.
  • You do not have the freedom to renovate your residence as you choose. Also, renters' activities are more apt to be restricted than in the case with homeowners.
  • If you rent, you face the possibility of your lease not being renewed, rent increases, and/or of being evicted.
  • The overhead for special services and recreational facilities is reflected in the rent whether or not you use the services/facilities.
  • Since renters do not directly hire maintenance and repair people, you may have to wait an annoyingly long time for routine maintenance.

You, the potential buyer or renter, must examine the advantages and disadvantages of each and decide which is best for you and your circumstances.

By Dr. Frances Graham, Extension Housing Specialist

Mississippi State University does not discriminate on the basis of race, color, religion, national origin, sex, age, disability, or veteran status.

Information Sheet 1475
Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture. Published in furtherance of Acts of Congress, May 8 and June 30, 1914. Ronald A. Brown, Director

Copyright by Mississippi State University. All rights reserved.

This document may be copied and distributed for nonprofit educational purposes provided that credit is given to the Mississippi State University Extension Service.
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