Ask DWM: “Should I Rent or Buy My Next Home?”

June 24, 2021

For those with a choice, there’s a lot to consider. Renting requires less responsibility and provides flexibility. Nevertheless, buying can be a profitable long-term investment with tax benefits. Further, the decision may vary by location.

The pandemic has brought on a lack of available homes as more people are moving now than ever before and increased prices have paused many aspiring buyers. On the other hand, there are falling rents, especially in cities, where landlords struggle to fill record numbers of vacant apartments. Of course, there’s no single correct answer, as there are pros and cons to both renting and buying and each situation is different.

According to LendingTree, the impact of the pandemic has been the most severe on real estate markets in major U.S. cities which had vacancies increase in 2020 as tenants and homeowners fled to "greener places", and to relatively less expensive places from which they could work remotely. The current median housing costs are lower for renters than buyers with a mortgage in the 50 largest U.S. metro areas. Below are the U.S. cities with the most substantial and smallest cost differences between renting and buying:

In deciding whether renting or owning is better for your situation, consider the following categories: How long do you intend on staying in one place and estimating the cost of renting vs buying. In each case, considerations may vary by situation.

How long do you intend on staying in one place?

Buying tends to be better the longer you stay because the upfront fees are spread out over many years. You also don’t need to pay up to $250,000 ($500,000 for married couples filing jointly) in capital gains on your home sale if you have owned your home for at least two years, it was your primary residence for at least two of the last five years, and you haven't claimed a primary home exemption in the last two years. Not to mention studies have shown adding personal touches to your home can increase happiness. Lastly, there are long-term tax benefits of deducting the interest portion of your monthly mortgage payments (within certain limits:

Estimate the cost of renting vs buying:

In reviewing renting vs buying it is important to consider your initial costs, recurring costs, opportunity costs, and net proceeds. In addition to principal and interest payments, homeowners also have property taxes, homeowners insurance, and (in many cases) mortgage insurance as well as homeowner’s association fees. Further, renting versus owning can have different impacts depending on your location, applicable home appreciation, local real estate taxes, and current interest rates. One way to review these important considerations in more detail is through the following calculator... 

The answer to renting or owning might change for you over time. There are other options, such as rent-to-own property, where you start out renting then move onto becoming a homeowner. No matter what conclusion you come to, it must be an informed one based on your financial situation and lifestyle. At DWM, we are here to evaluate our client's financial strategies and provide solutions for our client's long-term goals as their financial advocates. We welcome the opportunity to review these important items at any time.



Detterbeck Wealth Management is a fee-only financial planning / wealth management company with offices located in Palatine, IL (Chicago area) and Charleston, SC areas serving clients locally and across the country. To contact us about setting up an appointment, please see our contact us page