Rent vs. buy a home: 6 factors to consider

Published Date: August 21, 2023

A luxury home that  could serve as a second home that you could rent or buy.
As home prices continue to rise, the question for many is whether to buy or rent their next residence. Factors such as initial costs, maintenance responsibilities and the ever-changing economic landscape are shaping how you choose to live and if you invest in real estate. Let’s break down what it looks like to rent vs. buy a primary home or second home in 2023. From insurance policies and property taxes to monthly payments and lifestyle considerations, we’ll provide cost perspectives for renters and buyers alike.
A graphic shares six factors to consider when deciding to rent vs buy a home.

Renting a home

A graphic shares a statistic to consider when deciding to rent vs buy 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

A graphic shares a statistic to consider when deciding to rent vs buy 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 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

A Venn diagram compares and contrasts the differences between renting vs buying a home.
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. You may also want to have renters insurance.
Pay rentPay mortgage (if you have a loan)
Pay utilities (depending on the lease)Pay utilities

1. 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.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. 
Rent may include fixed property taxPay annual property taxes
Do not benefit from tax deductions Potentially benefit from tax deductions

2. 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. 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.
Landlords may require renters insuranceLoan officers may require homeowners insurance
Rental insurance covers damage to the rental unit and tenant’s belongingsHome insurance protects the home itself as well as the owner’s belongings

3. 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.
Not responsible for paying mortgage interest Responsible for paying mortgage interest if using traditional financing
Mortgage interest is tax-deductible 

4. Home 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.
Do not benefit from increased equity or property value appreciationBenefit from value appreciation of their asset
Potential to access equity loans and lines of credit

5. 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
Little to no maintenance responsibilitiesResponsible for all property maintenance
Potential access to shared amenities Potential to build long-term community connections

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, renting may be more expensive than buying, as homeowners build equity in their property and benefit from potential property appreciation. However, home ownership offers potential tax benefits, such as 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.
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 — a fully managed co-ownership programs like Pacaso 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.

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Kasey Tross

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