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Are you falling behind by renting?

In 2022, renters made up [about one-third(https://www.census.gov/acs/www/data/data-tables-and-tools/data-profiles/) of U.S. households, according to the U.S. Census Bureau. Bank of America’s study found a majority of renters (66%) worry they’re not reaping the same benefits as homeowners.

First, consider equity building. Those monthly mortgage payments, when they’re not paying the interest on the homeowner’s loan, help build equity over time, which can be a substantial financial asset along with the tax benefits of deductible mortgage interest and property taxes.

Rent payments, on the other hand, go directly to the landlord and offer zero tax benefit.

When you factor in that real estate generally appreciates over time, potentially increasing a homeowner’s wealth, it’s easy to see where renters might be experiencing remorse.

Then there’s the stability of homeownership that renting often cannot match. Fixed-rate mortgages offer predictable monthly payments, whereas rent can increase annually. Owning a home can also provide a sense of permanence, offering the occupant complete control over their living space.

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The pros of renting

You’d be tempted to believe the edge goes to homebuyers. But that’s not always accurate.

Why rent? Let’s start with mobility: Renting offers greater flexibility to move for job opportunities, personal reasons or lifestyle changes without the burden of selling a property.

Renters also avoid the hefty down payment and closing costs associated with buying a home. Security deposits are generally cheaper, and landlords typically handle repairs and maintenance, saving renters time, effort and money.

As for falling behind financially, that’s not always true. Yes, monthly rent payments typically are far costlier than mortgage payments, and those mortgage payments will build equity. But renters can save and invest money that might otherwise be tied up in a down payment or home maintenance costs. Renters enjoy an advantage if investments that would have made a down payment or paid repair bills end up yielding higher returns than real estate appreciation.

It’s important to remember that owning a home can be cheaper than renting over the long term if property values increase and mortgage payments are lower than rising rents.

Buy or rent?

The decision between renting and buying a home is deeply personal and depends on individual financial situations, goals and lifestyle preferences. While renting offers flexibility and lower upfront costs, it lacks the equity-building and stability that homeownership provides.

On the other hand, homeownership comes with significant financial commitments and market risks. Prospective homebuyers must weigh these factors carefully to determine the best path for their financial future.

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Chris Clark Freelance Contributor

Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.

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