Choosing whether to buy a house or rent an apartment can be one of the most important financial decisions you’ll make—and it’s more complicated than it might seem. You’ll find proponents on either side of the argument, insisting that it’s almost always better to rent or almost always better to buy, but the real answer is more nuanced, and dependent on unique personal variables.
Thankfully, there are several factors you can use to determine which is a better financial decision for your unique situation.
Equity
First, you need to think about the equity you might build by buying a home instead of renting an apartment. Assume for a moment that you’ll pay the same monthly cost for a home and an apartment–$1,000 a month. Your rent will go directly to a landlord, but you won’t be building ownership in anything.
When you buy a house, you’ll take out a mortgage to pay for the cost of the house, and in a given month, you’ll need to pay interest on that loan, property taxes, and home insurance—but you’ll also pay down a portion of that borrowed principal. Together with your down payment, those monthly payments will add up to increase your ownership stake in the home. Eventually, you’ll have full ownership. If and when you sell the house, you’ll receive some or all of the sale price (depending on your current equity), making home ownership inherently superior to renting in this regard.
Apartment Complex Perks
That said, the monthly cost of an apartment often goes into additional perks and amenities that you might not get when you buy a home. For example, some apartment complexes, like this one in Orlando, have onsite features to make life easier for tenants. Some offer recreational equipment onsite, or convenient laundry options, and others offer opportunities to build a community with the other tenants. This is an intangible value that occasionally makes apartments a better deal than a home.
Ongoing Maintenance
We also have to consider the costs of ongoing maintenance. As the tenant of an apartment, you shouldn’t be responsible for repairs and maintenance (unless you were the direct cause of the necessary maintenance). The landlord will take care of everything, including the costs, for you. But as a homeowner, you’ll be required to identify and fix everything that’s wrong with your home, as it comes up. Experts estimate that homeowners should reserve one percent of the value of their home per year in ongoing maintenance and repair costs, but these expenses vary wildly. Over time, these repair costs can increase the total cost of home ownership, jeopardizing its financial advantages.
Homeowner Responsibilities and Additional Expenses
You should also consider the additional responsibilities and/or expenses you’ll face as a homeowner. Many apartments have utility costs built-in, whereas homeowners are forced to pay for these out of pocket. Since homes are usually bigger than apartments, they often cost more to heat or cool. On top of that, homeowners may be responsible for adhering to neighborhood rules, whereas tenant responsibilities are minimal. Plus, homeowners have to take care of the hassle of selling the home when it’s time to move.
Accessibility
Finally, we have to consider accessibility. While homes are often better investment options for individuals, they aren’t always an accessible option. You need a decent credit score to qualify for a mortgage, and a good credit score to get a decent rate. If you don’t have that, or if you can’t save up enough for a solid down payment, an apartment may be your only option.
Which One Is Better?
So which one is better for you? Try to boil it down to these factors:
- Could you afford a down payment on a house and get a loan? If you don’t have a good credit score or can’t save up a down payment, the decision may be made for you.
- How long will you be staying here? Homes are better investments for people looking for a long-term stay, but if you’re only going to be around for a few months to a year, an apartment is better.
- Can you afford and commit ongoing maintenance? If you’re leaning toward home ownership for the equity perks, can you afford and commit to the need for ongoing maintenance and repairs?
- What are the comparable monthly costs? Make sure you incorporate all monthly costs, including utilities, maintenance, property taxes, and insurance, when comparing monthly costs between an apartment and a home.
If you know the answers to these questions, it should be evident whether renting or buying is the better financial decision for you. From there, it’s a matter of choosing the right home or the right apartment—which is a far more complex decision.
