Renting vs Owning a Home: The Eternal Debate

Back in 2006 when I left Canada, I sold my house and thought I’d never buy another one again. The place had been a fixer-upper and my father and I had invested a lot of time and money into it (nine years to be exact) — just in time to sell it.

I know that home-ownership is supposed to be the holy grail of the (North) American Dream, but I really wasn’t sure I wanted to ever get back into the cycle of renovations, repairs, and mortgages. It took a bit of an attitude change because as a simple search on Amazon suggests, mortgage-free home-ownership is what we are all supposed to aim for.

But I knew couples who had been renting for over twenty years and they had more disposable income than I’d ever had. When something went wrong in their place, it was the building owners, not the renters, who had to pay for it. Renters also knew exactly how much they needed to pay every month without any sort of surprise costs like a new roof or plumbing repairs.

That sounded good to me.

Generations ago in Ireland, my father’s family were renters. Yes, they owned property, but they never lived where they owned. They used the extra income from renting out the place to rent something better for themselves. And while they had those emergency expenses that any homeowner had, they considered it as a part of running a business, rather than intruding on their lives directly.

When I settled in the Basque Country, I was convinced that renting was for me. Although it irritated me a little bit that I couldn’t do up the place exactly as I would like, I was pleased to no longer have the temptation to enter into constant rounds of renovations like my parents did. They cycled through the house I grew up in, redoing one room a year, and I can’t count the number of times they completely remodeled the garden.

When my parents died a few months apart from each other then eight months after that my mother-in-law passed away, my husband and I found ourselves with a chunk of money. Given the volatile nature of the markets at that moment, investing did not seem like a good plan.

So, we got back into the home-ownership market, not just once but twice, buying a flat where we live full-time plus a second one in a sunny part of Spain. However, this second time around, owning a home is different from the first time.

  • We chose to live in a tower instead of a detached home, meaning emergency expenses are shared by the whole building and in a recent case, spread out over three years.
  • Our flat is half the size of the (small) house I had in Toronto, and is just the size we need.
  • Renovations happened quickly, before we moved in.
  • Mortgage payments are less than the monthly rent we were paying.

The second flat we bought (mortgage-free) has a double purpose, one as a weekend and summer retreat, and the other as a retirement emergency fund in case one or both of us needs to go into a nursing/retirement home. While medical costs are covered here in Spain, there is a big difference between public and private retirement residences. With the money from selling off the second flat, we will be able to live out our final years in comfort.

My siblings, however, took other routes: my sister invested in a large rambling country home and my brother sold his house and sunk the money into his girlfriend’s place, turning home-ownership into a type of romantic commitment.

When deciding if renting or owning is for you, just as with any project you undertake, it’s imperative you consider your priorities. In this case, the questions that can help you decide which option is better for you include:

  • What type of financial situation do you want to be in? Fixed or variable costs?
  • How important is it to you to put your personal stamp on the space you live in?
  • How much space do you really need? How much do you want to maintain?

The New York Times, has a good rent vs. buy calculator. I plugged in the original numbers for our primary residence and the results confirmed that buying was the right option financially, as we would be paying about three times the amount in rent each month as we do with the mortgage.

Are you a renter or a homeowner? Do you know which is the better option for you financially? Or are there other factors (emotional, familial, etc…) that led you to choose?

9 Comments for “Renting vs Owning a Home: The Eternal Debate”

  1. posted by Karen on

    For a long time we have owned property, and recently moved out of a home that desperately needed work before we could sell it. We searched to find a rental that would suit our family, and we found it and are very happy. Currently working on finishing up the renovations to the owned house in order to sell it. After nearly 20 years of owning homes, renting two out, and renting ourselves, I would have to say I would be happy to only rent for the rest of my life. Twice we’ve owned homes in what seemed like decent neighborhoods, only to have the neighborhoods go south, but owning makes it hard to move out of a suddenly unsafe area. Neighbors can change, and it’s the people that make a neighborhood livable or not. I look around our current rental, and there are some things that need to be fixed (cosmetic) and we can do that for our landlord, but if anything big goes wrong, I know we are not responsible for that, and that is a kind of freedom. I like that as our kids grow up and move out, we can downsize more easily than if we owned, and once it’s just the two of us, we can either live in a rental or in an RV and have a more mobile retirement. If we own a house that’s not an option.

    I have learned to not be emotionally tied to a house. It’s not a house that makes a home, it’s your family, as cheesy as that sounds. And as nice as our current rental situation is–we’re near a park and in a very quiet neighborhood–I wouldn’t hesitate to move if we had to. My husband and both enjoy moving; it’s an opportunity to downsize and declutter, and we enjoy exploring a new area of our city or state. So for us, renting makes the most sense.

  2. posted by The Undertrader on

    The only way owning a property is better than investing in the stock market is if you have it leveraged to the hilt (carry debt) or you flip it quickly. Let’s say you buy a $300,000 home for cash. In 30 years time it COULD be worth double? Triple? We’ll say it’s worth $1,000,000 in 30 years. That same $300,000 at 7% average growth in the stock market would get you $2,283,676.51. And that $2mil plus would be a long-term capital gain and taxed at half your rate and you would pay no taxes, repairs, insurance, upkeep, HOA, etc., so it would be a far greater return than the $1m. Once your home is paid off and you’ve ‘saved’ the money (by paying twice what your home cost on a 30 year mortgage), it’s in your best interest to mortgage it to the hilt and throw your money into the total market index fund. On top of all this, a home is illiquid, it’s not diversified, the neighborhood could go bad, the jobs could be lost in the area, etc….etc…etc… And the greater the price of the home, the greater you are missing out on by keeping your equity in it. A $500,000 investment at 7% capital gains is $3,806,127.52 in 30 years. And if you really want to invest in real estate, you could put your money into a REIT or two, which currently pay roughly 10-12% dividends and that $500,000 would be $11,446,148.29 in 30 years compounded. Bottom line, property doesn’t compound and rent can’t beat compounding.

  3. posted by Bec on

    I currently rent.

    The housing market is insane in Sydney, Australia. I think the median house price is over a million?! That may be incorrect – because I’m not looking too closely! I have been a renter for the last 8ish years with my boyfriend. We chose to rent, because we are in an area we like (we couldn’t afford to buy where we currently live), and the only place we may be able to afford would be on the outskirts of Sydney (about 60km away from where I currently am). The daily travel times of 1-2hrs depending on trafic each way and the cost of the toll roads is not worth it. Also we have traveled quite a bit!

    While I have a bit saved away there is no realistic way that we can save 200K for the deposit unless we live at the parents place and don’t go out and do anything… which isn’t going to happen!

    Do I want to own a place? Maybe eventually? I would love to not live in an apartment, but it would have to be in the country somewhere as we cannot afford Sydney anymore.

  4. posted by Kenneth in Virginia on

    We own the home we’ve been in for 31 years next August. The mortgage has been paid off for about eight years. We only rented an apartment for about three years. There are plusses and minuses about owning or renting but it wasn’t an investment; it was a home and a place to live. We tremble at the thought of moving, having done so twice already, although we expect to move again (for the last time) in two or three years after we both have retired, although we don’t like the idea of leaving friends and family. They may all be gone by then, so it will be easier.

    I also noticed that the article about socks had twenty replies but this one only had three. Some sort of inverse relationship between importance and responses there apparently.

  5. posted by Caroline on

    I rent and am happy with it. I don’t have the desire to own a house, like ever. I grew up as my parents renovated one room after another and spent every weekend doing projects around the house. I’d rather have my weekends free and be spared a line item in my budget for all the money at Home Depot I would have to spend.

  6. posted by Lucia on

    I wouldn’t agree that renting has fixed costs. Every time your contract comes up for renewal your landlord is able to set the new rent as they choose. I live in Barcelona and in the last year several of my friends have had to move due to exorbitant rent hikes. Plus one friend is frantically searching for a (more expensive) flat as her landlords have decided to sell, and she has no idea how long she will be able to stay. It often makes more sense to rent (not in Barcelona right now) but there is uncertainty in it too.

  7. posted by Karen on

    Caroline–exactly. My husband figures that once we sell the house we’re fixing, we will save thousands of dollars a year not going to Home Depot, except for gardening stuff (our landlord let us plant a vegetable garden in back and it’s been so much fun).

  8. posted by Jeremy Lacy on

    Good to read!

  9. posted by Jeremy Lacy on

    Good to read! Well, it depends on the person to decide whether he wants to rent a home or to own a home. Buying a home is everyone’s dream. Expenses, commitments, monthly payments, Tax returns or wealth are the five important factors that need to be undertaken while buying or renting a home. If a person is renting a home, then a renters insurance will help a lot to a person to get the insurance money if some damage occurs in the future. The insurance of the landlords only covers the property damage and not the losses of the tenant, just in case a burglary or break in takes. In such cases, renters insurance will help a lot to the tenants to cover the damage. Navigate here http://allclaimsusa.com/ to know more about the renters insurance and how to claim for renter insurance if tenants faces some loss.

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