The housing crunch of 2008 tested conventional wisdom about what it meant to own a house. Depressed home values have taken what was considered a traditionally “safe” investment and laced it with doubt. Today, many find themselves asking the question, “Renting vs. Buying: Which Is Better?” And that’s fair. Let’s look at the arguments.
Buying Is Better Because You’re Investing For Yourself
If you’ve spent any time renting an apartment, and you have a financially savvy mother or father, then chances are pretty good you’ve heard something like this: “You need to get out of that apartment. You’re throwing away money.” This argument in the Renting vs. Buying debate comes from the fact that each month’s rent goes to a landlord instead of building equity you can then cash out or borrow against at micro interest rates. You make your payment at the first of the month and essentially never see that money again. That’s true to an extent, but it doesn’t tell the whole story. In fact, the other side of this argument might say:
Renting Is Better Because Homes Are Losing Value
It’s easy for the pro-renter crowd to point their fingers at the last five years of home buying activities and shout, “Aha!” After all, house sales are down, prices are down, and if you bought in prior to 2008, then chances are pretty good that you’d be selling today at a loss or break-even. The economy has been tough on the average citizen. People have suffered permanent layoffs, long-term unemployment, underemployment, and greater rigidity in lending standards. It’s hard to make a 30- or even a 15-year commitment when the cards seem stacked against you. Better to rent a quality apartment you can afford than to deal with all the headaches and the potentially credit-debilitating reality of getting a mortgage and then losing your job. At least with many rentals you can leave with 30 days notice with no harm to your credit score. Furthermore, confidence in Washington’s ability to fix the problem has languished for more than eight years. There is a general feeling personal long-term commitments are bad ideas when the national outlook continues to worsen.
But What About The Future?
Traditionally, housing slumps have not lasted long and the purchase of a home has always been a sound investment. And as hard as it is to believe in challenging times like the present, this will hold true in the future. However, that doesn’t mean rushing out and buying a home now is the right move for you or your family. Before placing an offer, ask yourself questions, such as the following:
1. How long do you plan to stay in your current location?
Homes are 15- to 30-year commitments, and if you foresee a move in the next two years, then you should hold off. It’s an ordeal getting a new job, relocating, and then trying to balance finding a buyer for the old home while maintaining your present life.
2. Do you have the time and/or money to maintain the purchase?
The expense of a house doesn’t end with closing costs.
An appliance goes out. A fence board rots and requires replacement. A pipe leaks.
If you want to maximize value of the home, then there will be things come up you have to deal with that would be a landlord’s responsibility if you lived in an apartment. Are you prepared and/or willing to take those responsibilities on?
3. What are your career/life goals for the next five years?
Do you plan on having a child soon? If so, when and how many? Are you part of a management program or the military, where relocation goes with the territory? Do you plan on launching a home business?
Setting a five-year-plan isn’t just important for your family or career. It also influences the type of house you should buy or the decision to buy a home at all. Don’t think of making an offer until you’ve given it some thought.
4. Is the home you’re considering in a nice neighborhood with good values and quick resell turnaround?
Buying a home just to buy a home can end up costing more than a few years of renting if you’re not strategic about where you purchase and what your plans are. It’s rare a person decides to sell their home and finds a buyer the next day. But you can cut down the risk if you do some legwork and research the average time houses in a given area spend on the market and what average price they sell for at closing. By knowing this info before you buy, you can make an informed decision about where to make an offer.
So, Renting vs. Buying: Which Is Better?
Clearly, the answers will vary depending on where you are in life, and what you want from it. Rentals offer limited commitment, fewer hassles, and less money and time spent on upkeep. Homes, however, build equity for the buyer and typically grow in value. However, they are not impulse buys, and should only be considered by a discerning buyer, who knows what he wants from the purchase.
In other words, the right answer is yours to decide.