The Disadvantages of Renting

Becoming a homeowner can be scary. If you’re on the fence, we’ve broken down the disadvantages of renting so you can make your decision confidently. Speaking of fences, wouldn’t it be nice to have one surrounding your very own yard?

Disadvantages of Renting a House or Apartment

From upstairs neighbors who moonlight as professional cloggers to rent that rises faster than the living dead, rental life has some definite downsides. Everyone’s got their own reasons for becoming a homeowner, but we’ve rounded up five key disadvantages of renting that we’re betting you can relate to.

• Can’t build equity
• Can’t build credit score
• No tax benefits
• Lack of stability
• Lack of control

If reading that list sends chills down your spine, you’re not alone. Let’s dig deeper into each disadvantage of renting a house or apartment and dispel some mortgage phobias while we’re at it.

Can’t build equity

Monthly rent might cost less than a mortgage (then again, it might not), but what are those payments going towards? When you rent, there’s no end in sight. In fact, your rent will probably increase each time you renew your lease. And that money helps pay for your landlord’s mortgage, community repairs that will be used as an excuse to raise your rent even higher, and the upkeep of amenities you might not even use.

With mortgage payments, you’re building equity. Equity is the amount of your home you actually own, i.e., how much of your mortgage you’ve paid off. So, every payment not only gets you closer to owning your home but also builds equity. That equity can be leveraged when you refinance your loan or sell your house down the line.

Can’t build credit score

While your history of making rent payments on time is impressive, it doesn’t contribute to your credit score (unless you pay a fee to have it reported to credit bureaus).

Paying off your mortgage, on the other hand, can help you build your credit. As your credit score improves over the life of your loan, you can use that to get better terms or a different mortgage type when the time is right to refinance.

No tax benefits

Taxes can be confusing, but one simple truth about them is that owning your home makes you eligible for write-offs that renting doesn’t. You might not qualify for all of them, but these are some of the most common tax breaks for homeowners:

Mortgage Interest

You might consider interest rates a reason to avoid buying a home, but you can actually deduct them when you file your taxes. This write-off applies to the interest paid on the first $750,000 of your home loan. You can find the full IRS explanation of how it works here.

Discount Points

Points are pre-paid interest on your mortgage. When you take out your home loan, you’ll have the option to purchase these points to get a lower interest rate. One point equals one percent of your mortgage, and these points can be written off as itemized deductions when you file your taxes.

Property Taxes

As a homeowner, you’ll pay state and local property taxes. If you file jointly with a spouse, you can deduct up to $10,000 in property taxes. If you file as an individual, you can deduct up to $5,000.

Home Office Deduction

Deductions for home office expenses only apply if you’re self-employed and operating your business from home. If you’re not self-employed but work from home, you can’t deduct those expenses from your taxes.

Home Improvements

This deduction only applies to medically necessary home improvements (sorry, but renovating your attic because it’s too creepy doesn’t qualify). This includes modifications like installing ramps, widening doorways, and lowering counters for accessibility.

Lack of stability

Another disadvantage of renting a house or apartment is the lack of stability. You’re likely renewing your lease every 6-15 months, with an increase in rent each time. With a mortgage, you’ll be looking at terms from 10-30 years. If you choose a fixed-rate mortgage, you can rely on having the same monthly payments until your mortgage is paid off or you refinance for a new rate and term.

Lack of control

If you’re tired of pricy pet policies, limited decor options, and all the other community guidelines that renting entails, it might be time to buy a house. You may still have to deal with an HOA, but you’ll have a lot more freedom over decorations, landscaping, and your space in general. When you buy a house, you also get more control over the type of community you move to, whether you’re looking for LGBTQ-friendly neighborhoods, locations with fun educational opportunities that fit your kids’ needs, or a dog-friendly environment for the furrier members of your family.

How do I know if I’m ready to buy a house?

When it comes to weighing the advantages and disadvantages of renting, the right choice for you is all about your priorities.

If renting isn’t checking your boxes anymore, take our rent vs. buy calculator for a spin to see what’s possible.

This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before making the decision to buy or refinance a home.

When you rent instead of purchasing your home, you miss out on opportunities to build equity, qualify for tax benefits, and grow your credit history.