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Updated October 22, 2023

Renting vs Buying Your First Home - A Practical Guide

Renting vs Buying Your First Home - A Practical Guide

Renting vs Buying Your First Home - A Practical Guide

AJ Giannone, CFA

Bill Chen, CFA

Personal Finance

Every generation has faced housing challenges in some capacity, but increased prices and limited availability of homes have caused Gen Z to navigate possibly the toughest housing crisis to date. While previous generations rave about the benefits of owning a home, those opportunities are no longer easily accessible for today's generation. This guide is designed to help identify the values important to Gen Z when considering renting vs. buying a house.

The Case For Renting

There is a simplicity to renting that nearly 44 million renters across the United States take advantage of annually. Everything from getting approved, to making monthly payments, to moving out is simple. Renting offers convenience and flexibility in exchange for homeownership and equity.

Renting Process

Everything from finding a rental property (house, condo, apartment, etc.) to receiving approval is uncomplicated as landlords have repeated this process dozens of times. Your only costs are monthly rent and utilities until the end of your lease until you renew or move out. 

Advantages of Renting

  • The landlord typically handles all maintenance, repairs, and lawn care. These are costly items for homeowners and possibly the biggest perk to renters. Since time is your most important resource, having someone else handle these tedious tasks cost-free becomes invaluable. 

  • Flexibility to move is one of the most significant advantages to renters. Either at the end of your lease or by paying an early move-out fee. The ability to move to another part of the city, state, or country is a massive perk. As a homeowner, you would have to put your house on the market, hire a real estate agent, and continue to pay your mortgage until you sell.

  • Traditionally renting is cheaper than owning a home when considering hidden fees. While renting and mortgages could be comparable in some cities. There are many hidden fees in owning a home that must be factored in, including property taxes, HOA Fees, routine maintenance, higher utilities, unexpected repairs, lawn care, and home insurance.

  • No massive upfront fee to renting. Unlike buying a home which traditionally requires 20% of the home's value upfront. For example, a $300k house would require a $60,000 down payment. Renting only requires a security deposit before you move in, typically 1-2 months' rent. 

With those advantages of renting, it's no wonder that homeownership in the United States has decreased by 35% in 2021. Both Millennials and Gen Z are more willing than previous generations to pack up and move to new cities for better job opportunities. Thus the flexibility and ease of rentals fit better into the core values of these more mobile age groups.

The Case For Buying

The case for buying has always been seen as the gold standard for previous generations, with nearly 80 million homeowners existing in the United States. However, Millennials and Gen Z adopt a non-ownership culture, from streaming movies and music to car share subscription services. Owning a house may not be viewed as a necessity in the Gen Z lifestyle, but it still possesses many incredible benefits when viewed in the long term. 

Buying Process

Buying a home today feels very different than it did with previous generations. In today's current climate, buying a house is highly competitive and rushed at breakneck speed when making the largest purchase of your life. 

You first need to get pre-approved for a house in your budget, find a home, make an offer and hope the owner accepts. However, once you own the house, it is yours forever.  

Advantages of Buying

  • Houses can build equity for potential profit whenever you decide to sell. Equity is the fair market value of your home minus the amount you owe. Consideringhousing prices in the United States have increased 5.3% annually since 1992, some consider houses an investment. Unlike rentals, your monthly payments add to your home's equity and factor into the profits when selling.

  • Ownership of your house means you can make changes. Unlike rentals, where you are subject to the rules of a landlord. You are free to move walls, retile your kitchen or update appliances. Depending on your HOA, you could even rent out a guest room or create an Airbnb for extra money.

  • Your home remains yours as long as you want it. Unlike rentals, which have an end date. You maintain ownership of your house indefinitely, as long as you maintain your mortgage and tax payments. This can become an asset to pass along to your kids to help create generational wealth.

  • Homeowners have many tax benefits. The United States government encourages homeownership and supports this by offering several tax benefits for homeowners. Most accountants can help you take advantage of all the tax benefits of owning a home.

Typically if you're planning to live in a place longer than three years, buying is a great decision. It builds equity over time, provides ownership of your space, and creates permanence. So it's easy to understand why every generation strives for homeownership.

Bonus Alternative - Rent To Own Homes

Rather than choosing renting vs. buying a house, a popular alternative in recent years has been "rent-to-own homes." Like renting a property, this alternative provides the renter with an available option to purchase the property at the end of their lease.

While these alternatives have grown in recent years, each rent-to-own housing contract is different, and few mainstream services exist. You may find a few of these companies in your area but review the lease terms carefully with a real estate attorney as these deals are far more unique. 

Bottom Line

Gen Z is at a point where they are still growing their careers and moving for better opportunities. In many cases, renting is an excellent choice for the flexibility in their life and the necessity for low maintenance. However, if you're planning to live in an area for more than three years, the advantages of owning a home start to add up. Either way, saving and investing for a down payment now will open up more opportunities in the future, whether you decide to rent or buy a house.

Here at Allio, we provide our clients with a variety of tools that they can use to investing, regardless of how much money they have in their budget. Whether you want to set up a recurring investment, opt into round-ups that let you automatically invest as you make everyday purchases, or simply make one-time deposits when you have extra money in your budget, Allio is here to help you work toward your financial goals.

Whether you’re seeking an expert team to manage your money or looking to build your own portfolios with the best financial technology available, Allio can help. Head to the app store and download Allio today!


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