Deciding to buy a home instead of rent isn't always a question of simple math

Renting versus buying a home comes down to whether you value certainty or flexibility more, says one early retiree.
Buying a home can be an investment and offers the certainty of a fixed mortgage payment, but it also comes with a lot of unexpected costs and can take a while to build equity.
Renting is typically more affordable and flexible, and offers an opportunity to build greater savings, but gives residents less control over the property.

It’s an age-old debate: Should you rent or buy?

According to early retiree Tanja Hester, “Often it comes down to the question of which you value more: certainty of how much your housing will cost or flexibility to keep your assets liquid and to move whenever you want,” she wrote in her book, “Work Optional: Retire Early the Non-Penny-Pinching Way.”

Hester, blogger at Our Next Life and influencer in the FIRE (financial independence/retire early) community, retired at 38. She and her husband bought a house in 2011 for well below the area’s median price and financed it on a 15-year mortgage. But just because buying was the right decision for her doesn’t mean it’s the right decision for you.

“The question of whether to rent or buy is also a highly personal one, not a simple math problem, with a number of variables such as what your local market dynamics are, which arrangement feels better to you, how attached you want to be to one place, how important it is to you to customize your space, and whether you want to tie up resources to save for a down payment rather than saving for another goal (like early retirement),” she wrote.

Renting and buying both have their merits and pitfalls.

Owning a home offers certainty, but also a lot of unexpected costs

Owning a home is typically considered an investment because you might make a profit when selling it. And if you live there long enough, you may one day pay off your mortgage, which "allows you to live quite cheaply," Hester wrote.

According to Hester, there's a certainty that comes with owning a home - assuming you finance it with a fixed-rate mortgage, you know how much your payment will be long-term and any increases in property taxes, insurance, and utility payments are expected.

And there are still tax benefits, even though recent tax law changes have capped how much of your mortgage interest and state and local property taxes you can write off on your tax return, Hester said. The benefits do vary based on your income and tax rates.

"There's also a big emotional aspect to owning a home: knowing you can customize it as you wish and that no one can kick you out so long as you pay your mortgage and property taxes," she wrote.

However, homeownership also has some financial downsides. According to Hester, many people underestimate the costs of homeownership, like repairs, particularly during the first few years.

Paula Pant, who bought a $225,000 home with a $26,000 down payment, learned this the hard way. She previously told Business Insider that when it comes to saving for a home, you need to save for more than the down payment - it's the ongoing costs you need to keep in mind.

"There's all this stuff you never imagined you would buy - a garden hose, a lawnmower - and having money for repairs and maintenance," she said. "It takes a lot of money. Every paycheck was going to Home Depot for all the little things."

There's also the chance you'll have difficulty selling the home at a fair price and can't move when you wish, Hester said.

"Owning a home comes with a great many costs the owner never recoups, and it locks up capital for the long term that can't easily be accessed," Hester wrote. "It also takes many years of paying off a mortgage before most buyers will accrue significant equity in their home."

Renting is typically more affordable and flexible, but less dependable

Renting, on the other hand, often means less money spent than buying for a majority of people, Hester said. "You won't lock up huge sums of money in your investment, and you don't have to deal with repairs yourself," she wrote.

In nearly half of all US counties, it's cheaper long term to rent than to buy; 64% of the US population lives where it's more affordable to rent than buy, Hester wrote, citing 2018 data from Attom Data Solutions.

Not only is rent typically a smaller, fixed monthly payment, but it also involves no property taxes, more freedom and mobility, and possibly a greater chance of increasing your savings.

"Research shows that if you're disciplined about investing the money you would be spending to buy in your market versus what it costs to rent, you can come out ahead of those who do buy their homes, because the stock markets tend to give better long-term returns than the housing market," Hester said.

But that depends on how the markets do and whether you actually invest the money not going to a mortgage.

However, "when you rent, you aren't building equity, you often can't make changes to the property, and you benefit from no tax write-offs," Hester wrote. "Your rent can also go up unexpectedly, depending on local rent control rules."

You might also have to pay a broker's fee if you're living in a high-demand location like New York City.

Weigh the pros and cons of each and "make sure your gut gets a say in the matter," Hester said.