Home prices are soaring. In certain markets, the total cost of homeownership has never been higher. Property taxes, home insurance, private mortgage insurance, and other expenses have made the cost of owning property incredibly expensive. In the United States, the average price of a home is $229,000, up 5.2% from one year ago [1]. In Massachusetts, that value is $407,000, and in Rhode Island, it is $283,000. Both of those are significantly above the average in the United States.

Similarly, rental prices are also rising. The national median two-bedroom apartment costs $1,190 per month [2]. Those values are $1,647 and $1,178 in Massachusetts and Rhode Island, respectively. The year-over-year rent change is approximately 1%, which is significantly less than the appreciation in home values. However, the most distinguishing factor is that the rental situation is a lot more volatile in this market. With housing, you have more historical data, so it is a little easier to investigate. These fluctuations vary drastically across different cities.

Given that rental prices have not been rising as much as house values, many would-be homeowners are questioning if buying is still worth it. Like many things in the world, the answer is that it depends. There are pros and cons to each decision. We will analyze the two main pros and two cons of renting vs. buying.

Pro: Renting Has A Fixed Cost

The main advantage of renting is that it has a fixed monthly cost. Is your water heater broken? No problem. The landlord usually will attend to it. Is your air conditioner broken? Again, no worries because your landlord will attend to it. With renting, you know your expenses for the next year, and they will not rise until it’s time to sign a new lease. Of course, with homes, that is not the case at all. When something breaks, it is up to you to fix it. Home repairs can also be quite expensive. It’s not uncommon to need upwards of $10,000 if something serious happens with the foundation or if there is any major plumbing work. Budgeting with a rental is much easier than budgeting with a home or condo.

Pro: Your Short-term Payments Won’t Be Much Higher Than A Mortgage

Recall that the median home price in the U.S. is $229,000, and the average monthly rent is $1,190. Assuming you put 20% down, your monthly payment, inclusive of property tax and insurance, is estimated to be $1,026, only $164 more than a mortgage [3]. That $164 buys you peace of mind knowing that if something breaks, you are not responsible for fixing it.

For Massachusetts and Rhode Island, the calculations are similar. Furthermore, with an apartment or other rentals, you do not need to worry about being foreclosed upon or getting into costly legal tangles. As long as you can make the rent for the duration of the lease, you can stay in the unit.

Con: No Equity

The biggest con of renting is that you do not accumulate any equity. All your rent costs go directly to the landlord, and you will not get any of that back. You will also miss out on property appreciation. Of course, you’ll also be safe from any declines in property values as well.

While that is usually a big con, in today’s hot housing market, it’s less of a concern. After all, housing prices have skyrocketed after having been bolstered by cheap interest rates. Many economists are predicting that the United States may head into recession territory within the next couple of years. Of course, no one can time the market, but if you want to shield yourself from property valuation declines, then renting is one way to do that. Remember, as the market changes, the rental market will adjust accordingly. It is a lot easier to predict the housing economy than it is to predict the rental economy. Just keep in mind that no one can predict the future.

However, even if the market does go down, it remains true that all your rent payments are gone. A house will always be worth something, then if you paid someone else for it in the future. For that reason, renting not accumulating equity is ultimately a con.

Con: Less Control & Long-term Appeasement

Although home repairs are expensive, you have full control over when you do the repairs. If you don’t like the counter-tops, you can have them ripped out, and install new ones. Similarly, if the water heater isn’t working the way you want it to, you can buy another one. With a property you own, you have full authority over what you install and how things look.

With a rental property, the landlord may defer repairs. Also, you don’t have anywhere near the same control over how things look. If the landlord wants the walls to be yellow, it is entirely within their right to make them yellow. There is significantly less control when it comes to a home you rent as opposed to one that you own.

If it is important to you how a home looks, or if you want to have total control over repairs, then buying is a smarter option for you! Correspondingly, if the renter makes any adjustments or improvements, it is all towards the benefit of the owner. If you decide to renovate the bathroom, with the owners approval, all the improvements will be more valuable to the owner. With that, the less control also makes it less lucrative financially (in the long run) to rent.

Renting vs. Buying: Which Is Better?

As we have seen with the pros and cons that we have listed, it’s not a straightforward decision whether or not to rent or buy. Renting has a fixed cost, a monthly payment that’s about equal to a mortgage, and much more mobility. If you don’t like the rental property after a year, you can always move and another one! On the other hand, you do not accumulate equity with a rental property. You are just putting potential leverage in someone else’s pocket. While housing prices are not expected to increase in the future significantly, you will lose out on any housing appreciation if they do. Finally, renting means giving up control. The landlord has full rights to determine how the property looks and when they perform maintenance.

In the end, the decision often comes down to personal preferences and current situation. If you want monthly predictable expenses with mobility, renting is perfect for you! If you desire to accumulate equity or if you want complete control over the property, then buying is the smarter choice. In any case, when looking at properties, it never hurts to look at both sides. Take a look at a few apartments and house rentals. Also, consult with a real estate agent and see what is out there to buy. You will be surprised what is out there. Then make the decision that is best for you!

This article is authored by a prominent, Province & Domain agent, Joshua Monteiro. To learn more about him, click here.