Marcus P. Miller, CFP®
- May 11
- 5 min read

The Pros and Cons of Buying vs. Renting: A Comprehensive Guide to Help You Make an Informed Decision

The decision to buy or rent a home can be a complicated one, especially in today's housing market. While buying a home has historically been seen as a smart investment due to lower payments than renting, the current market conditions have shifted significantly. In this article, we'll explore the factors that are making it harder for buyers to enter the housing market, provide insights into how to make an informed decision about whether it is better to buy or rent, and offer actionable advice for readers who are trying to navigate the housing market.

Current Market Conditions

The housing market has experienced significant changes in recent years, making it more difficult for buyers to enter the market. Interest rates have risen to 6% or higher, leading to mortgage payments that are more than 50% higher than they were in the past. Property taxes, insurance premiums, and maintenance costs continue to rise each year at a rate of 3-5%. Meanwhile, rents are increasing again by around 3-5% per year.

Cost Comparison for Buyers vs Renters

When taking into consideration all of the costs associated with buying a home, such as mortgage payments, taxes, insurance, and maintenance, buying can still be seen as an investment. However, it takes up to 10 years for buyers to realize any savings compared to renting due to their higher monthly expenses. When evaluating the costs and benefits of buying versus renting, it's important to consider factors such as the tax benefits of owning a home, the potential long-term gains from appreciation, and the financial benefits of renting and investing the difference in cost.

Emotional Factors

While the financial aspects are important, the decision to buy or rent a home can also be influenced by emotional factors. For example, some people may prefer the stability and sense of ownership that comes with owning a home, while others may prioritize the flexibility and low maintenance of renting. It's important to consider these emotional factors in addition to the financial ones when making a decision about whether to buy or rent a home.

Investment Considerations

When evaluating the pros and cons of buying a home, it's important to consider all costs associated with ownership as well as projected appreciation over time. This will help you determine if buying a home is a better investment than renting in today's market. If you do decide to buy a home, it's important to save for a substantial down payment and consider the long-term financial commitment that comes with homeownership.

Example

Let's say that you are considering buying a home for $500,000 and you have the option to put down a 20% down payment ($100,000). You are also considering renting a similar home for $2,500 per month.

If you decide to buy the home, you will need to secure a mortgage to cover the remaining $400,000. Let's assume that the interest rate on your mortgage is 6% and that you plan to pay off your mortgage over 30 years. Your monthly mortgage payment would be around $2,398, which is lower than the monthly rent of $2,500. Unfortunately, most people stop their evaluation here and buy the home. The reality is that the home will have taxes of around $8,000 per year, and home insurance required by the lender at another $5,000 per year. We should assume that things like roof replacements, garage door maintenance, AC vent cleanings, etc. may add up to an average of $2000 per year. Thus the true cost of the home is $3,648 per month, a figure far higher than the $2,500 rental.

So why do so many people say you should buy a home? Because they bought at a 2.5% mortgage. The math changes considerably when you finance at such a low rate. For example, that same home would cost only $1,580 for the loan, and a total of $2,880 including the taxes/insurance/maintenance, which is much closer to the $2,500 rental.

Over a 10 year period, the taxes/insurance/maintenance should increase with inflation. The mortgage and interest payment will remain the same, meaning your overall cost of the home should be relatively stable and increase much slower than a rental. On the other hand, the rental cost should increase at 3-5% depending on the local rental market. This looks as follows:

However, it's important to note that the home you bought is likely to appreciate in value over time. Let's assume that the home appreciates by 3% per year, which is a conservative estimate. After 10 years, the home would be worth around $671,000, which is a gain of $171,000 from the purchase price of $500,000.

If we subtract the home's appreciation from the total cost of ownership, the net cost of buying would be significantly changed. In this scenario, buying a home would still cost more than renting over the first 2 years. However, if you plan to stay in the home for a longer period of time, the net cost of ownership is likely to be lower than renting in the long run.

Of course, this is just an example and the actual costs and outcomes will depend on many factors such as the location of the home, the state of the housing market, and individual circumstances. It's important to carefully consider all of the factors before making a decision on whether to buy or rent.

Actionable Advice

If you're trying to decide whether to buy or rent a home, here are some actionable tips to help you make an informed decision:

Consider your lifestyle and personal goals when deciding whether to buy or rent.
Evaluate your financial situation and make a budget to determine what you can afford.
Research different neighborhoods and housing options to find the best fit for your needs.
Save for a substantial down payment to reduce your monthly mortgage payments.
Consider working with a financial advisor or real estate agent to help you navigate the housing market.

Buying a home today can still be an investment, but buyers must be aware of the higher costs associated with ownership. By considering the financial and emotional factors involved in the decision to buy or rent, buyers can make an informed decision about what is best for their unique circumstances.

Author's note:

There are additional factors we have not addressed in this article that should be considered when deciding whether to buy or rent a home. These could include current housing market conditions, the impact of the COVID-19 pandemic, tax benefits of owning a home, closing costs, opportunity costs associated with making a down payment, and how to evaluate different neighborhoods and negotiate a home purchase. To address these more complex issues, we recommend that readers consult with a financial advisor or real estate professional who can provide personalized advice and guidance.