An Unbiased Look at the “Rent vs. Buy” Argument

From our friends at Long and Foster Realtors:
According to the Wall Street Journal: “Most [Rent vs. Buy] calculators figure that if prices are more than 15 times annual rents, then a market favors renters; under 15 times, buyers”. 

Unlike what many articles will lead you to believe, the decision to buy a home stems much deeper than a simple math equation. If, according to this equation, your market* is favoring buying to renting this should be viewed as one of many reasons to buy a home, not THE reason.

Why buy?

If steadiness is important to you, owning a home is the way to go.  Unlike rent a fixed rate mortgage will be the same month to month year after year.  You will always know what tomorrow brings. Along the same lines, homeownership grants you control over things like decorating and pets. 

Also consider your life style and what stage of life you are in. Purchasing a home is a commitment to the area and a commitment of time and money for upkeep.  Are you ready for this “ball and chain”?

Most importantly buying builds equity. Despite current media hype, homes do increase in value over time (just not 20% or 30% like in “the boom”).  Mortgage payments work for you, just like traditional investments. If you make mortgage payments for 30 years, at the end of that time, you own the house unlike renting.

Why rent?

If you are not sure where you will be, geographically, in the next 5 years renting may be best. The financial benefits of owning are home are typically awarded to those who stay in the home for 5+ years; so renting grants you more freedom and mobility than home ownership. Typically one can afford to rent in an area in which they could not afford to buy. For this reason renting can allow someone to live either in a nicer area or closer to the city.

The obvious benefits renting include worry and cost free maintenance, accesses to amenities like a pool or gym, and sometime even free utilities. Along with property taxes and even some local taxes, these are all fees that would be paid for separately as a homeowner.

If you choose to rent for the long term, the money saved (in lieu of a down payment) can be invested in other places that may have a quicker return on investment than the purchase of a home. However, renting can be beneficial to a soon to be homebuyer as well. Renting can grant you time to save money or to fix your credit score.  Putting down a larger down payment or building a better credit score can save you far more money than jumping into the housing market too early.

Because every buyer and local housing market is different, I can’t make a flat out statement for or against buying a house. The best decision is the one that works for you and fits your lifestyle.

*by YOUR market I mean your local market. Data should be considered on a city or even neighborhood level.  Markets differ from zip code to zip code.
Photo Credit: by John Hall & associates
This entry was posted in Guest Blog and tagged , , . Bookmark the permalink.