The question of whether to rent or buy is particularly troubling. Many people cannot afford to go on the housing ladder and must choose between the two options. Well, it depends on several lifestyle factors, including if you prefer flexibility or stability, what your job aspirations are, and whether you want a location to genuinely call your own. If you’re on the fence about whether to rent or buy, keep reading this article to learn what you should think about before making a decision.
What factors should you consider when deciding whether to rent or buy?
1) Timing is everything
Consider where you are in your life before making a purchase. Are you planning to stay in one place for a while, or will you be relocating in a few years? According to Holbert, it takes around five to seven years in a home to recoup the purchase price. Closing costs, ranging from 2% to 5% of the purchase price, are included in this figure. “If your housing needs are going to be very regular and predictable over the next several years,” she added, “now would be a really good time to buy. “If they’re changing, you might want to consider renting so you can relocate more easily.”
2) Consider the Benefits and Drawbacks of both Renting and Buying
Both renting and purchasing property have advantages and disadvantages to consider. While owning a home might help you develop equity, it also comes with financial hazards. For instance, you may be unable to recoup your closing costs or renovation costs if you re-sell your home too soon. Not to mention the costs of home upkeep. You’ll have to pay these costs to keep the house in good shape. Checking air filters and vents, testing fire alarms, gardening, and repairing plumbing problems are just a few examples of fixes that you have to deal with after buying a home.
Adding home upkeep to your list of obligations may not be ideal if you’re focused on other life goals, such as work that demands frequent travel or if you have many young children to care for. On the other hand, renting implies you’ll never be able to create equity wealth. Your monthly rent could increase at any time. You’re also at the mercy of your landlord, who may order you to vacate or defer repair demands.
3) Location
It’s all about the location. Depending on where you reside, the decision to buy vs. rent may be made for you. Renting may be the only affordable alternative in high-priced real estate markets like San Francisco. Safe neighborhoods, decent schools, closeness to public transportation, walkability, drive times to work, shopping, and recreation are all significant aspects to think through when choosing where to reside.
4) Estimate the Cost of Renting Vs. Buying
Because of the upfront fees, renting can often be cheaper than buying a home. A down payment, closing charges, moving costs, improvements, and other property upkeep activities are included. Just because you can afford mortgage payment does not guarantee you can afford to own a home; costs accumulate. You’ll have property taxes, homeowners insurance, and mortgage insurance in addition to a monthly payment that exceeds the principal and interest on your mortgage. On the other hand, buying a home is usually less expensive in the long term and allows you to create wealth.
Is renting always cheaper than buying?
The straightforward answer is no. For that reason, your choice should be dependent on where you reside, whether renting or owning an equal property is less expensive. Several other factors, many of which are beyond your control, such as the trajectory of the housing market, interest rates, and investment returns, might also influence your answer. When the two options are compared, at least in the early years of a home purchase, renting wins out.
Renting is less expensive if tenants invest the money they would have spent on a down payment plus any money they save from renting each month. When you buy a property, you pay more upfront, but you can recoup part of it (and possibly more) when you sell it. Renters must invest, not spend, their savings to meet or exceed the return on investment of a home buyer.
The Bottom Line
There isn’t always a direct answer to the question of whether to rent or buy. The answer may vary over time depending on your circumstances and financial status. There are other choices, such as a rent-to-own property, where you start as a renter and then progress to homeownership. Whatever option you make, make sure it’s well informed and based on your financial and lifestyle circumstances.