Should I Rent Or Buy?

After politics and religion, nothing contributes more to frosty discussion around the holiday dinner table than whether it’s smarter to rent or to buy. There are many arguments to make in one direction or the other. You can argue pro-career mobility, or pro-community building. There’s the “throwing money away” argument and the “hidden costs of homeownership” argument. There’s the argument that home values barely keeping pace with inflation versus the fact that homeowners tend to have a much higher net worth than non-homeowners. The issue is complex. Here are three aspects for you to weigh when you’re making the decision. Dollars and Cents The simple fact of the matter is that most people buy more house than they can afford. Even though mortgage requirements have tightened up after the recession, the amount of money a homeowner needs to maintain a home often comes as a surprise to a novice. There are filing and closing costs that come with buying the house. There’s inspections when you’re shopping for a house. There’s the cost of moving itself (although renters pay that too of course.) There’s homeowner’s insurance, HOA fees and property taxes. After that, a good rule of thumb it to expect to spend at least 1% of the value of the home on upgrades every year. Unlike a renter, you’ll be paying out of pocket for every plumbing bill or new appliance that is needed. Use a good calculator to figure it out. If you cannot afford the full cost of homeownership, it is better to rent and save up. Future Plans With the workforce becoming ever more mobile, it’s particularly important to give some thought to your personal plans. If you do not plan to stay in an area at least 5 years, it is very possible that you will lose money when you sell. If you sell. We manage the properties of a number of people who became “reluctant landlords” when they had to move, but could not sell. Owning a home can also cause you problems when taking another job. Even another job in the same city can just as likely add to your commute as lessen it, so you may need to take that into account as well. Personal Psychology The enduring reason that homeownership builds wealth is because every month people are building their net worth. It is true that that money would work harder for them in the stock market, but few people take the balance of the money left over after the rent is paid and invest it. Unless you have the discipline to save and invest the same way a person who is saving for a down payment or a bathroom upgrade might save, homeownership might be a good “forced savings” option. The decision to buy or rent is a deeply personal choice, and many aspects of your situation must be weighed carefully before you choose.