While home ownership is considered to be part of the American Dream, it is not the perfect solution for everyone. For many people, it actually makes more sense to rent rather than buy a home. When you are making this decision, there are a few key factors that you have to consider. Only after reviewing all these points can you answer the important question: to buy or to rent?
Length of Stay
How long are you planning on staying in your current location? Buying makes the most sense when you will be in an area for several years. This way you get a permanent home and won’t have to worry about lease negotiations or moving every year. If you only think you’ll be around for a year or two, renting makes more sense. Buying is fairly complicated so you don’t want to complete this process, only to have to start over in a couple years. While buying for a short-term stay can sometimes make sense, you can sell or rent your home after you leave, it generally makes more sense to rent.
Renting a home is less expensive than buying a home. Depending on the rates in your area, your monthly rental payments will likely be less than your monthly mortgage payments for the same property. Even if monthly rent would be a little bit more expensive, there are still many more expenses associated with buying a home.
First of all, to buy a home you need to make a sizable down payment, often 20% of a house’s purchase price. This adds up to thousands of dollars. For renting a home, you only need to pay the first month’s rent and sometimes a small down payment. In addition, when you own a home you are in charge of all the upkeep. If the plumbing breaks, you need to hire a plumber. If the roof starts leaking, you need to pay for the repairs. As a renter, all you need to do is call your landlord and he’ll take care of things.
A significant advantage of buying a home over renting is that why you buy a home, you build wealth. Every time you make a mortgage payment, you pay off a little bit of your property. Over time, you will eventually become the owner of a house worth thousands of dollars.
When you pay rent, you build nothing. All your payments go towards making your landlord rich. As a renter, it is important to keep in mind that your housing payments aren’t being saved for the future. You need to save money in some other way like through the stock market. Buyers should still be saving money, but it is less urgent because they are building up wealth in their homes.
In real estate, it’s all about location, location, location. Before making a decision, you need to review your current market. Some places are better for renting while others are better for buying. If there is a housing bubble in your city and house prices are through the roof, you should lean towards renting instead of getting locked into an overpriced home. If home prices are low compared to rents, buying becomes a smarter long-term play.
Deciding whether to buy or rent a home isn’t an easy decision and certainly isn’t one you should rush. After considering all these factors, you should have a pretty good idea about what you should do. Enjoy your new home.