As home prices continue to rise, the question for many is whether it makes financial sense to buy or rent their next residence. Factors like initial costs, interest rates, maintenance responsibilities and the ever-changing economic landscape are shaping how people choose to live and if they make the decision to invest in real estate. Let’s break down what it looks like to rent vs. buy a primary home or second home in 2023 or 2024. From insurance policies and property taxes to monthly payments and lifestyle considerations, we’ll provide cost perspectives for renters and buyers alike.Renting a home
Renting works well for those who value flexibility and prioritize convenience. In fact, 34% of U.S. households currently rent their home. Unlike home ownership, renters are not responsible for maintaining their unit, usually making it a budget-friendly option for those who want to save for a down payment to buy a house or invest their money elsewhere.Short-term rental sites like Airbnb and Vrbo provide vacationers a turnkey experience with a customizable length of stay. Long-term and short-term renting often grants access to amenities such as swimming pools, gyms or other facilities that may be financially unfeasible for homeowners.Owning a home
On the other hand, owning a home serves as an investment that can build equity over time — 66% of households live in a home they own. Whether it’s your primary or secondary residence, home ownership gives you the freedom to customize your living space according to your lifestyle and design preferences, which is often restricted in rental properties.There are several types of property ownership to choose from, depending on your budget and the level of responsibility you prefer. For example, single ownership may be more expensive than co-ownership of a property, but it gives you more control over the home.While home ownership is often seen as a goal to strive for, renting vs. buying a home may make more financial sense in certain stages of life. To learn more, let’s take a closer look at the differences between buying vs. renting.Buying vs. renting: Differences to consider
No matter whether you rent or buy a home, you will be responsible for some housing costs. If you plan on buying a home with a loan, your monthly payment will take the form of a mortgage, which includes the principal and interest. You will also pay for utilities and maintenance costs, as well as homeowners insurance. If you rent a home, you will pay a set amount for your lease and may or may not be responsible for the utility bills, depending on your rental agreement. Many people also choose to get renters insurance, and some leases require it.| Renters | Homeowners |
| Pay rent | Pay mortgage (if you have a loan) |
| Pay utilities (depending on the lease) | Pay utilities |
1. Mortgage interest
Those who rent their homes don’t have any mortgage interest to consider, as they do not own the property. Instead, their monthly rent payments go toward the landlord's expenses, which could include mortgage interest payments. In contrast, unless you pay cash, buying a house involves paying a mortgage that includes interest and a principal payment. Although mortgage interest can appear as a financial burden, it can qualify as a tax deduction, depending on the type of loan and the amount.| Renters | Homeowners |
| Not responsible for paying mortgage interest | Responsible for paying mortgage interest if using traditional financing |
|
| Mortgage interest is tax-deductible |
2. Monthly housing payment
Renters are responsible for a monthly rent payment. It’s typically a set amount that only changes in between lease terms or in month-to-month rental arrangements. In fact, there are laws in place that regulate how often a landlord can raise rent prices. Some landlords include the cost of utilities in the total rent payment, while others require renters to pay for utilities. Homeowners are responsible for a wider range of costs. First, you have a monthly housing payment that includes principal and interest. Then, your mortgage company will usually take a scheduled payment for your escrow account, from which your mortgage company pays things like property taxes, homeowners insurance and mortgage insurance premiums (if you purchase your home with a down payment of less than 20 percent). Whether you’ll pay more in your monthly housing payment as a renter or a homeowner depends on a lot of factors, including market conditions, interest rates and the size of your down payment. Homeowners who bought their home with a fixed rate mortgage can expect monthly payment amounts to stay relatively flat over the life of the loan, with the exception of insurance premium and tax fluctuations over time. | Renters | Homeowners |
| A single monthly payment | Multiple items to pay, often lumped together into a single payment |
| Rent can go up at the end of your lease period | Payment amount stays flat for homeowners with fixed-rate mortgages |
3. Home insurance
Insurance considerations differ between renting and buying a home, but both living situations may require some type of insurance. Renters might need to present renters insurance for liability protection in case of accidents or damage to the rental unit. It can also protect your belongings in case of flood or fire. Homeowners are generally required to obtain homeowners insurance in order to qualify for financing. This insurance covers the structure of the home and its contents. It also provides liability protection for accidents on the property. The average cost for renters insurance is around $168 a year, while the average price of homeowners insurance is around $1,117 to $2,950 per year.| Renters | Homeowners |
| Landlords may require renters insurance | Loan officers may require homeowners insurance |
| Rental insurance covers damage to the rental unit and tenant’s belongings | Home insurance protects the home itself as well as the owner’s belongings |
4. Home equity
A major difference between renting and buying a home is the opportunity to build equity. Rent payments contribute solely to the landlord's income and do not provide renters with any property ownership stake or investment value, so tenants do not build equity.As homeowners make mortgage payments over time, they build equity in their property and may benefit from property value appreciation — making buying a home a long-term investment with the potential for financial gains. Additionally, home equity can allow homeowners to access funds through home equity loans and lines of credit.| Renters | Homeowners |
| Do not benefit from increased equity or property value appreciation | Benefit from value appreciation of their asset |
|
| Potential to access equity loans and lines of credit |
5. Property taxes
Tenants who rent typically do not receive direct tax benefits related to the rental payments they make, and property taxes may be fixed into their lease agreements. Homeowners, however, can enjoy various tax advantages, including second home tax breaks and property tax and mortgage interest deductions.Although homeowners need to pay annual property taxes and mortgage interest, tax deductions are available and can lead to significant tax savings. Even when selling a home, for example, homeowners may qualify for capital gains tax exclusions that further reduce their tax burden.| Renters | Homeowners |
| Rent may include fixed property tax | Pay annual property taxes |
| Do not benefit from tax deductions | Potentially benefit from tax deductions |
6. Lifestyle
Lifestyle considerations play a crucial role in the decision between renting and buying a home. Renting offers greater flexibility and mobility, making it an appealing choice for individuals who prioritize a transient lifestyle. Renters can easily relocate for job opportunities or personal preferences without the burden of selling a property. Renting also eliminates the responsibility of property maintenance and repairs, providing a more carefree living experience. On the other hand, buying a home suits those seeking stability and ownership. Ownership allows people to customize their living space and establish long-term relationships within their community. Although homeowners have more control over their living environment, they are responsible for all property maintenance and upkeep. | Renters | Homeowners |
| Little to no maintenance responsibilities | Responsible for all property maintenance |
| Potential access to shared amenities | Potential to build long-term community connections |
A word on second homes
The rent vs. buy debate isn’t limited to primary residences. Buying a vacation home is a big decision, and sometimes people decide to rent their primary residence and make their second home the first one they buy.Many of the financial comparisons are the same — you’ll need to decide whether you want to take out a mortgage, pay for a wider range of expenses. and be responsible for maintenance, or whether you’d rather simply pay a flat rate to the owner of the property whenever you’d like to use it. There are pros and cons, of course, related to the value of real estate ownership.
But above and beyond the financial implications of buying a second home, you’ll need to compare pros and cons related to destination, vacation priorities and whether you want to rent out your property. The cost of buying vs. renting a home [$300,000 home example]
Renting generally involves lower upfront costs, as renters typically only pay a security deposit and first month's rent, whereas home buyers need to make a down payment, cover closing costs and potentially pay for inspections and other fees. Additionally, renters are usually not responsible for property maintenance and repairs, while homeowners must budget for these expenses. In the long run, however, renting may be more expensive than buying, as homeowners build equity in their property and benefit from potential property appreciation. Home ownership also offers potential tax benefits, including deductions on mortgage interest and property taxes which can result in significant savings. Here is a breakdown of cost expectations of renting vs. buying a $300,000 home.|
| Buyer | Renter |
| Down payment/deposit | $60,000(20% of selling price) | $2,400 |
| Closing costs | $12,000(4% of selling price) | $0 |
| Total upfront costs | $72,000 | $2,400 |
| Monthly payment | $1,414
($240,000 at 7.07%) | $2,400
(0.8% of home value) |
| Property taxes | $338/mo(1.35% of value) | $0 |
| Insurance | $115/mo(0.46% of value) | $32
(1.32% of annual rent) |
| Maintenance | $250/mo(1% of selling price + 2% inflation/yr) | $0 |
| Total monthly costs | $2,303 | $2,432 |
| Total first-year costs | $99,636 | $31,584 |
Whether you’re searching for your next primary residence or vacation home, keep the pros and cons of buying vs. renting in mind before making a decision. Another option: Co-ownership
If both the convenience of renting and the equity of home ownership appeal to you, consider the benefits of shared ownership. Through this model, you can co-own a second home, use it for the amount of time that works for you, and split the cost of ownership among other owners. Unlike a timeshare, however, this model offers the potential for real estate equity and a more accessible path to owning a second home. DIY co-ownership can be challenging to set up, but a fully managed co-ownership model like Pacaso makes co-owning a second home easier than ever.Rent vs. buy home FAQ
Is it better to rent or buy a home?
Your budget and lifestyle considerations ultimately determine if you should buy or rent a home. Although buying a home can be an investment, renting a home provides a flexible lifestyle that can help you save for other investments.
Is renting cheaper than owning a home?
It could depend on where you’d like to live. For example, a mortgage payment on a home could be cheaper in a less desirable neighborhood compared to the rental price of an apartment in a highly desirable location.
Is home ownership a good investment?
Home ownership has the potential to benefit home buyers if it builds value and equity over time/ However, other factors like your budget and the amount of time you want to live in one place can help you determine if home ownership is a good investment for you.
What is renting to own?
Renting to own can be a great opportunity for home buyers on a budget to eventually own a property, but the terms and conditions of these agreements may reduce your options for traditional mortgage financing. Be sure to consider all your home buying options before signing to a lease-to-own agreement.
