Searching for a new home is a monumental task, often filled with a mix of excitement and anxiety. One question on many people’s minds when they start their home search is whether they should buy or rent. With Colorado being a hot spot for newcomers from other states, home prices are increasing it’s more common to consider which is the cheaper option. There are many factors to weigh that affect the choice that’s right for you, but here is a breakdown of whether buying or renting is less expensive in Colorado.
If you need help in your search for buying and renting houses in Colorado, contact Black Bear Real Estate and Property Management for a free consultation!
Renting vs. Buying
When considering whether to buy or rent in Colorado, consider the positives and negatives that affect costs in one way or another.
Advantages of Renting
- No major down payment is required when renting unlike when you are buying a home.
- No worrying about buying and selling fees and costs. Buying usually requires extra expenses such as mortgage insurance and taxes.
- Maintenance responsibilities (and costs) are the responsibility of your landlord. When owning a home, these are your responsibilities and costs to bear.
- Lower costs and time incurred if you need to relocate.
Drawbacks of Renting
- Money paid towards rent does not build equity. If you buy a home, the money paid on the mortgage builds equity and retains value.
- Cannot customize your space with complete flexibility.
- Rent costs can fluctuate depending on the decisions of the landlord.
- Home prices are increasing. Without owning the home, you may miss out on value appreciation over time.
Is it Cheaper to Buy or Rent a House?
When it comes to the question of which is cheaper - the answer is certainly renting, at least in the short term. That’s because renting doesn't require a large initial sum of money and is free from additional costs like home repairs and property taxes. However, in the long term, buying may be more cost-effective as you build equity in a home, which may increase in value over time, and payments become more stable compared to rising rents.
If you have limited savings, just started a new job, or are considering moving within a few years, renting a home will likely be a better financial decision. Here’s why:
With renting you have a substantially lower down payment (a few hundred dollars vs. tens of thousands) and incur zero maintenance costs that would otherwise fall completely on you as a homeowner. A three-bedroom single-family house may cost around $1,900/ month in rent while the same house under a private mortgage for ownership could be about $2,200/ month based on current interest rates.
Furthermore, you will incur lower fees and associated expenses when renting compared to buying and selling a home. This is especially true if you need to relocate often. With the far lower initial cost and lower costs per month for both maintenance and monthly costs (rent vs. mortgage), renting is going to be cheaper.
It is important to consider, however, that buying may be a more economical option in the long run. Renting will be less expensive over the years, but if you value the retained equity and ownership of a home, you will end up having more money through the ownership of the asset whereas in renting your money is just going to your landlord.
Things to Consider When Deciding to Buy or Rent
There are even more factors to consider that will impact how much it will cost to rent versus to buy a home. Aspects such as lifestyle, career, relationships, finances, and location will all impact your decision, so ask yourself these questions first:
How long do you plan on living there?
If you know how long you are going to be living in a given location, it may have an impact on whether renting or buying will be cheaper.
If you know you will be moving in three years or less, renting will always be the cheaper option. If you are going to be living in the same location for longer than three years, there is a chance that the value creation through the appreciation of your property will make home ownership the better option when viewed over a longer time span.
Are you financially stable?
If you are financially stable and have a sizable savings account that you can draw from, you may be able to afford a down payment for purchasing a home. If you are not financially stable, have a new job, (or are in between jobs) and are not putting money into a savings account on a regular basis, choosing to rent will save you from having to make that substantial initial investment and give you flexibility to move should you need to.
Do the benefits outweigh the risks?
Purchasing a home is more costly upfront, but can become a better financial option due to the retained or increased value over the long run. Homeownership also comes with a considerable amount of risk, however, so you should weigh whether the long-term financial benefit is greater than the costs you may incur in the short term.
Should You Buy or Rent? The Answer is Different for Everyone
Renting is less expensive in most situations, however, you won’t be building any equity. Buying is often the better choice in the long run, but it depends on your unique situation. The significant initial costs, maintenance expenses, and higher monthly price (rent vs. mortgage) make renting usually the cheaper option overall.
If you are searching for houses for rent in Fort Collins, contact Black Bear Real Estate and Property Management to help you find the right options for your lifestyle and budget. Call today to schedule a free consultation.