By now everyone’s head the saying, “You’ve got to live somewhere.” And it’s true; if you’re an independent adult faced with the rite of passage of finding a place to sleep and keep your stuff, you’ve looked for a place to live.
For most adults just starting out, renting is the only viable option. But after one’s credit has been established, along with a reliable job history, the question of whether to buy or rent a place to live becomes a common topic of thought and conversation.
Even now that couples are waiting longer to marry and start families, the question of whether or not making one of the largest purchases in life still pops up at some point.
The question is, should you rent a house or buy a house in the current real estate market?
Buying or Renting a House
With the current tight rental market, it is cheaper to buy a house than it is to rent a house. According to Trulia, it is currently on average 39% cheaper to buy a house compared with renting in the top 100 real estate markets.
In today’s real estate market, low mortgage rates and high rents make buying a house seem like the logical answer. In the long run, what matters most is the appreciation rate of your home.
If the housing market should decline again, then it would be more expensive to own your home than renting. Normally, inflation-adjusted home prices rise about 0.5% per year, but as we saw in 2008, housing prices can fall rapidly.
Are You Prepared to Own a House?
There are numerous advantages to owning your home such as not having to worry about a landlord, tax deductions and appreciating in value.
The first question is can you afford the down payment, closing costs and other costs associated with buying a house. Then there are the yearly costs of owning a home such as property taxes, homeowners insurance, mortgage and maintenance. It isn’t like renting; if the furnace or hot water tank breaks you will have to pay.
Are you prepared to stay in your home for at least five years? If you had to move, could you sell your home quickly or could you wait out a downturn in the housing market?
Doing the Real Estate Math
Just from a numbers perspective, it usually makes sense to buy, rather than rent. According to a survey by the Federal Reserve, the average American homeowner’s net worth is $171,700, while the average renter’s net worth is a pale $4,800.
Study after study indicates that the most significant life choice an individual can make to secure their financial future is buying real estate.
In short, if you’re rich, you own real estate. Some exceptions to the numbers argument is living in a rent-controlled apartment, or in a dwelling that’s free. (Thank, Mom!) But the rule is: building wealth for yourself, and not a landlord, means buying.
Considering Your Temperament
Are you mentally and physically ready to own your home? Are you confident that, if your furnace were to break in January, you’d be able to handle it?
Do you need to feel like you can leave town at the end of your lease, and not worry about when you’ll return? How rooted are you a certain location, and how much do you know about choosing a home in a specific neighborhood?
These are just some of the questions that indicate some of the intangible aspects of home ownership. Remember, forewarned is forearmed, and there’s no substitute for planning and preparation before any big decision.
Your temperament and emotional readiness mean something. Don’t ignore them just because you can’t measure them.
Within Your Means
People who rent live beyond their means, and so do people who own real estate. One isn’t necessarily more expensive than the other. It’s a matter of spending consciously and carefully.
When buying a property, there are lots of hidden extras to consider: taxes, insurance, repairs, and maintenance, just to name a few.
What may have been included in the rent–like the water bill–is now your responsibility, and the added expense can sneak up on you.
This may mean buying real estate close to work, so that you can forgo car payments, or deciding to wait another year. The down market has taken the urgency out of finding a screaming deal.
The Pros and Cons of Renting
Renting a home has its pros and cons, but in today’s real estate market it is expensive to rent.
The pros of renting your home include:
- You are not responsible for the upkeep of the house such as holes in the roof, plumbing problems or broken appliances.
- The only insurance you might buy is renters insurance, and that is cheap.
- Being able to move as soon as your lease is up if you should find you do not like the house or the neighborhood.
The cons of renting your home include:
- Dealing with a landlord who can be intrusive or troublesome.
- The possibility of your landlord raising the rent substantially when the lease is up.
- The possibility of your landlord selling the house when the lease is up or not renewing your lease for some reason.
If you know you are going to be living in the house for many years, then you can withstand the swings of the real estate market. If you are undecided, don’t let the current talk force you to make a hasty decision, rent your home for awhile and make the proper decision.