Homeownership is a major factor when it comes to financial stability. This is readily apparent when looking at the data on wealth gaps. For the last four decades, the average net worth of homeowners has been approximately 40x greater than renters. High prices have led to discouragement for Gen X and younger, but the overall desire to own remains high. A Realtor.com survey found that 2/3 of Gen Z believe homeownership is a cornerstone of the American Dream, and older generations were even more likely to hold this sentiment.

While homeownership continues to be a priority for most Americans, the average age of first-time buyers has dramatically increased and many are expecting to rent for the longterm, if not indefinitely. This is largely due to a lack of affordability, but there are also circumstances in which renting makes more sense. April is Financial Literacy Month, so now is the perfect time to explore the impacts of different housing options. 

RENTING PROS

FLEXIBILITY
Renting makes it easier to move when your lease ends, which is ideal if your job, lifestyle, or location might change in the near future. Buying and selling comes at a cost. Buyers who are financing typically pay around 4% of the purchase price toward closing costs, not including any Realtor fees they may be responsible for. Sellers will also have title expenses, recording fees, Realtor compensation (if they’re represented), and buyer concessions depending on the contract. Recouping these costs and building equity takes time. Therefore, renting can be a better option for those planning a move in the near future. 

RENT IS THE MOST YOU'LL PAY FOR HOUSING
Unlike homeownership, where a mortgage is the floor for housing expenses, monthly rent payments are the ceiling for tenants since the owner is responsible for maintenance, repairs, tax increases, and all of the other expenses that arise from property ownership. This is likely built into your rent, at least to some extent since landlords expect these things to come up. But the bottom line is that renters know exactly how much their housing will cost each month and this will remain constant throughout the lease term. 

NOT RESPONSIBLE FOR MAINTENANCE
This goes hand-in-hand with the above point. Not only do renters have the benefit of not having to pay to maintain the home, they also  get to avoid the time (and frustration!) that goes into property maintenance. There’s a lot of talk about how much money goes into homeownership, but most people aren’t tracking how many hours they spend on yard work or replacing deck boards or figuring out why that breaker keeps tripping. The list goes on and on! These tasks certainly produce a sense of accomplishment, but there’s no denying that homes are a huge time drain.

RENTING CONS

DOESN'T BUILD EQUITY
Your monthly payments go to the landlord, not toward an asset you own. Unlike homeownership where you can tap into your equity or sell at a profit later on, renting doesn’t build long-term wealth.

RENT CAN (AND ALMOST ALWAYS WILL) INCREASE
Landlords raise rent over time, which can make long-term budgeting unpredictable. The average monthly rent in the US has increased 30% since 2020. So, while it’s nice to know exactly how much you’ll pay each month during your current lease, that amount is likely to go up when you renew.

HOUSING INSTABILITY
Even if you’re the best tenant in the world, there’s no guarantee that you’ll be able to stay in the home when your lease is up. Your landlord could sell to someone who plans to occupy the home or the rent could increase beyond your budget or a landlord can choose not to renew your lease for any number of reasons. There are plenty of possibilities that can leave you scrambling to find a new residence at the end of your lease.

LESS FREEDOM WITH THE PROPERTY
You typically need permission to make changes and, depending on the changes you make, your landlord may require you to revert the property back to its original condition at the end of your lease. Tenants may also face pet restrictions and risk losing part of their security deposit for damages.

OWNING PROS

FIXED PAYMENTS
With a fixed-rate mortgage, your principal and interest payments are consistent for the life of the loan, providing stability and acting like a forced savings plan.

BUILDS EQUITY/TRANSFERABLE WEALTH
Every mortgage payment increases your equity. As we discussed at the beginning of this blog, homeownership has a substantial influence on net worth because you’re gaining more equity as you pay down your loan, and the value appreciates at the same time. 

Another factor for parents to consider is how homeownership status affects their kids. A report from the Urban Institute found that only about 1 in 7 millennials whose parents rent end up buying a home. For millennials with homeowner parents, the chances more than doubled. This is due to a number of reasons: the ability to advise throughout the process, providing gift funds toward the purchase and, in some cases, inheriting property from a parent. According to the Federal Reserve, parental wealth is a more significant factor for first-time buyers than their own wealth when it comes to housing retention. 

MORE FREEDOM TO DO WHAT YOU WANT WITH THE PROPERTY
As long as you’re following local regulations (and HOA rules, if applicable) you have the freedom to renovate and use your property however you choose.

OWNING CONS

MORTGAGE PAYMENTS ARE THE LEAST YOU'LL PAY
As we previously mentioned, mortgage payments are the bare minimum when it comes to housing costs. There will always be other non-negotiable expenses as a homeowner. Eventually your mechanicals, roof, and appliances will need to be replaced. You’ll be responsible for ongoing upkeep. Your property taxes and insurance will increase over time. And that doesn’t even account for the fun stuff, like cosmetic improvements! Having access to emergency funds is a critical component of maintaining a home.

NOT THE BEST CHOICE IF YOU PLAN TO MOVE IN THE NEAR FUTURE
Short-term ownership can make it harder to break even or profit. A very general guideline for the break-even point has been five years. However, that timeframe has jumped to as much as ten years for 2026 buyers, according to Realtor.com. The math on breaking even has never been a hard and fast rule. It is highly dependent on the circumstances of your purchase and the local market. But it’s still important to check an amortization schedule so you understand how much you’re paying down over the years. 

FLUCTUATION IN VALUES/EXTERNAL OBSOLESCENCE
While real estate typically appreciates over time, market conditions can cause temporary declines in value, especially if there are negative factors contributing to your area. External obsolescence is a form of depreciation caused by negative influences outside of the property itself, such as development, economic or environmental forces. Take data centers, for example. This has become a contentious topic throughout our area because of the potential impacts that living near a data center may have on health, local resources, and property values. As a homeowner, external factors that are out of your control can greatly affect your financial security.

We are, of course, big proponents of homeownership. Owning real property can open the door to emotional and financial comfort. However, buying a home is a major decision that shouldn’t be taken lightly. It’s important to compare the costs and benefits as they pertain to your personal situation. No matter what path you choose, the best decision is an informed one.