According to Dave Ramsey, Buying a Home Beats Renting and Investing the Difference

Buying a home in today’s market is tough with high prices and interest rates. Savings accounts, on the other hand, are still offering enticing interest rates, and the stock market has been going gangbusters for the last two years.

So, is investing a better idea today than buying a house?

While the answer varies on a multitude of factors, doing both — buying a home and investing — is really the best choice.

But if you can’t do both, a house may be your best bet. According to Dave Ramsey, it’s because whether it’s rent or a mortgage payment, this is the cost that eats up the largest part of most people’s budgets.

As a homeowner, you’re in control of when that cost changes. Rent, on the other hand, you can’t control and often goes up every year.

Here is what you need to know when comparing buying to renting.

Pros and cons of buying a home vs. renting

Pros of buying a home

• Easier to grow your wealth: You’ll instantly have more assets just by buying a house, and you start building equity with each mortgage payment. You can tap your home equity through a home equity loan or a home equity line of credit (HELOC), but proceed carefully with those.

• Consistent monthly payments: If you have a fixed-rate mortgage, your cost won’t increase for up to 30 years.

• When your monthly mortgage payment is locked in, it’s locked in for the length of the loan — or at least for the length of the introductory rate (often five years) if you have an adjustable-rate mortgage (ARM).

• Housing stability: In addition to consistent monthly payments, you aren’t relying on a landlord who could suddenly change their mind and raise your rent or decide to not renew your lease when it’s up. You won’t have to go without that outdoor furniture you paid for either if a landlord can’t prove they took it.

Cons of buying a home

• Large upfront cost: A down payment alone may cost tens of thousands of dollars — 20% of a $300,000 home, for example, would be $60,000. But what about closing costs, which may be another 5%? And what if your purchase offer relies on the home seller covering those costs to win out against other offers? It might not be an “all-in cost,” but repairs and furniture can be costly, too.

• More difficult to change homes: When renting, you just need to finish the lease or pay an early termination fee before you can move to a new place. When you own a home, it’s a much slower process to prep and sell it.

• Responsible for all home maintenance costs, homeowners insurance and property taxes: Fixing burst pipes, gutter repairs and lots more, if needed, are now fully your responsibility. Homeowners insurance isn’t required in every state, but you may choose anyway to pay for it along with the property taxes. Understand what home insurance will or won’t cover before something bad forces you to find out.

Pros of renting

• No responsibility for maintenance costs, homeowners insurance or property taxes: As long as you take care of the apartment or home you rent, you avoid having to worry about it, typically. There are exceptions, such as if landlord fails to protect your possessions as required under landlord-tenant laws or doesn’t get property insurance coverage that they are responsible for.

• Lower upfront costs compared to buying: You still need to pay fees and things like a security deposit upfront, but these don’t total as much as what a home down payment would be. A security deposit will also be refunded as long as the quality of the rental were not negatively impacted by you.

• Ability to live in different places more easily: If you can afford it, there’s not much stopping you from selectively living in a different home whenever you want, or even in a different city or state if that’s preferable to you.

Cons of renting

• Rent will consistently go up: Your landlord might choose to raise the rent for the next leasing period by a higher percentage increment than what was done previously. Average annual rent prices (nationally) could also rise significantly from one year to the next.

• Can’t build equity in a home: Home equity is one of the easiest ways to build assets and, in turn, your wealth. You just won’t have it by way of renting and instead would need to build your wealth elsewhere if possible (e.g., investing).

• May need to move if the landlord decides to sell the property: While unlikely, a landlord could sell the home you live in with the request that you move out. They can’t force you to leave in the middle of your lease, but you may need to move once it ends, regardless of how long you’d lived in the home.