When searching for a home, deciding whether to rent or buy can be a daunting task. The choice is one of the biggest decisions that many adults make in their lives.
Many younger people have been renters for most of their adult lives, which makes the leap into homeownership a difficult one. The costs of buying can vary more than renting, but there are many hidden costs that can be overlooked, making the process very complicated for first-time buyers.
Before making the decision to rent or buy, it is wise to look into the advantages and disadvantages of both to see which option fits with your current lifestyle.
Advantages of homeownership
- A mortgage builds equity
- Tax benefits
- Monthly mortgage payments are often lower than renting
- You get the benefits of your home improvement projects
Disadvantages of homeownership
- You are stuck here
- You pay property taxes
- You pay for the home repairs and maintenance
Advantages of renting
- You have more flexibility to move
- You can live in an area you couldn’t afford to buy in
- You are not responsible for maintenance and repairs
Disadvantages of renting
- No return on investment
- You are bound by the rules of the lease agreement
- You cannot make changes to the home without the approval of the homeowner
So how do you ultimately make the decision on whether to rent or buy? The final decision is ultimately dependent on the city you live in.
Location is one of the top factors for people looking to buy or rent a home. Some cities are great for renting, but in others, it makes more financial sense to buy the home.
To help find the best cities in the United States for both renting and buying, Liberty Bank in Chicago recently compiled data and used it to rank the top 50 U.S. cities and urban areas for renting and buying.
It compiled their rankings using this methodology:
- Mortgage interest rates (from Bankrate)
- Average rent prices (from Numbeo)
- Median housing prices (from Zillow)
- Buy-to-rent ratio. To get this we created the rent ratio by taking the cost of a three bedroom apartment (from Numbeo) within the city center and outside of the city center for each city. We also created the buy ratio by taking the price per square foot within the city center and outside the city center for each city. We then took the difference between the two and compared each city.
Key takeaways
There are a few interesting takeaways from the data in their rankings:
Midwest is great for buying
The Midwest seems to be the best bet for people looking to buy a home. Seven out of the top 10 cities in the rankings for buying are located in the Midwest. Many of these cities have both low interest rates and low buy-to-rent ratios making them ideal cities for buying homes.
The Southwest is the place to be for renters
Renting in Arizona is very popular according to their rankings with three of the top 10 cities to rent being located in Arizona.
Mesa is ranked No. 1, Tucson No. 3 and Phoenix No. 6. The Southwest actually dominates the top 10 cities to rent with seven cities represented on the list.
Big cities are bad for renting
The most populated cities in the U.S. are typically among the worst for renting. New York City is the worst city on the list for renting, mainly due to high rental prices.
Los Angeles (No. 44), Houston (No. 41) and Chicago (No. 45) all rank near the bottom of the list for renting. Philadelphia is the only city in the top five cities by population size that ranks favorably for renting (No. 29).
Some cities are great for both buying and renting
Some cities on the list graded well for both buying and renting homes. Wichita, Kansas, ranks No. 2 for renting and No. 13 for buying.
Tucson, Arizona, is a another city that ranks well for both renting and buying, coming in at No. 3 for renting and No. 12 for buying. Albuquerque, New Mexico; and El Paso, Texas both rank in the top 10 for both renting and buying. Buyers and renters both prosper in each of these cities.
To see their full set of rankings, check out the slideshow below.
Matthew Zajechowski is the senior content strategist for Digital Third Coast in Chicago. Follow him on Twitter or connect with him on LinkedIn.