Is it better to buy a property or rent? As with many questions in the realm of personal finance, the answer isn’t clear-cut. Some will see homeownership as a key investment, while others will point to the myriad costs of owning a house that renters can avoid.

Personal finance expert Jeremy Schneider tells Kiplinger that “the right question” to ask yourself is “‘How much are you spending and saving in each scenario?'”

If you purchase a reasonably priced home that has minimal expenses using all cash, and routinely invest your savings, you’d end up in a very different financial situation than if you were to splurge on a luxury home with high upkeep costs and property taxes that left you with little money to invest. Same goes for if you rented an affordable studio outside the city versus a luxury rental in a prime downtown location.

It also matters what you’re doing with any savings you reap. As Eli Beracha, coauthor of a study on homeownership in the Journal of Housing Research, told Kiplinger, “[r]enters could, on average, accumulate more wealth than homeowners if they invested the equivalent of a down payment plus the difference between a monthly mortgage payment and rent in a diversified portfolio.” But for that to happen, you’d need to have enough money remaining after paying rent, and then actually invest that sum.

When is it better to buy?

It might be smarter to buy instead of rent if you plan to stay in a property for a long time. According to Kiplinger, “[m]any experts recommend buying only if you expect to park yourself there for at least five to seven years.” This has to do with how long it takes to build equity in a house, as well as the costs associated with selling one home and buying another. As Nerdwallet explains, [t]he virtues of buying grow when you stay in a home for a while. As the years pass and your home’s equity and value have a chance to build, less of each mortgage payment is used to pay off interest and more goes toward your principal.”

Location matters, too. There are various online rent-or-buy calculators that you can use to figure out if buying is the best value for money in your area. For this assessment, you might also look at a location’s price-to-rent ratio, which is the average purchase price of a home in that location divided by the annual cost of rent. According to Fidelity, a ratio “less than 20 generally favors buying.”

Buying is probably the right move if the lifestyle comforts that owning can offer are important to you. For instance, owning a home can offer the ability to make a space totally your own and to ensure greater stability in your living situation.

When is it better to rent?

If you live in an area where “rents are low relative to purchase prices,” Fidelity explains, then renting might be more financially favorable than buying. If the price-to-rent ratio in your area is greater than 20, that “generally weighs in favor of renting, while a figure,” the financial services company adds.

Buying a home is, well, expensive. Closing costs can run anywhere from 2 percent to 5 percent of a home’s purchase price — something you’d skip out on paying entirely if you were to stick with renting. It’s important to crunch those numbers and hold them up against the cost of renting in your specific location to determine which choice would really offer savings.

While owning a home is often portrayed as an opportunity to build wealth, with homeowners finding that their property appreciates over time. However, Kiplinger points out a flaw to this logic: “The reality is that people who think of owning a home this way don’t track their expenses year over year,” the site says.  And homeownership comes with a number of expenses that aren’t associated with renting, such as paying for property taxes, repairs, landscaping and other improvements. In fact, one financial advisor told Kiplinger that he “advises clients to plan on spending 1 percent of the home’s value each year for maintenance and upkeep.”

Another reason to opt for renting is the flexibility renting can offer. If you’re not sure what the future holds, renting can allow you to make changes to your living situation as needed. You can also save time on many of the maintenance tasks that owning a home involves, such as mowing the grass or handling a repair. These tasks can be costly as well and, as Investopedia notes, “renovation projects don’t often increase your home’s value by more than what you spend on them.”

Plus, while you rent, you can work on saving up for a down payment and the cash to cover homeownership expenses so you can minimize mortgage costs when you are ready to buy. Or, you could invest that extra money you’re saving from not owning a home. It’s even possible to invest in real estate without actually becoming the owner of the place you call home, such as by investing in real estate investment trusts (REITs) or purchasing a rental property that you don’t live in yourself.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week’s sister site, Kiplinger.com

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