Renting or buying: Which is smarter?
Considerations include your age, stress level and investment outlook.
"The best thing in my old place was Lou," DeGaris says. "Faucet leaking? Call Lou. Air-conditioning not working? Call Lou. Now that I'm a homeowner, I got no 'Lou.' You know anyone who does gutters in Indianapolis?"
Is it better to rent or buy a house? That's a question virtually all adults ask themselves at one point or another, and especially around this time of year, as some people consider their goals and plans for the year ahead. So before you answer the question, here are some other questions you should ask yourself first.
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Is it important that your house is an investment? If it's very important, you might want to rethink your future living arrangements.
"Americans were used to their homes being a store for wealth – something to liquidate in retirement and downsize," says Scott Shellady, a senior vice president of derivatives for Trean Group, a futures and commodities exchange in Chicago. "No longer the case. Houses can go down just as easily as they go up."
He adds: "The bull run in housing we saw in the '90s and early 2000s will not happen again in our lifetime."
Shellady also cautions prospective homeowners to think about the health of the city they want to live in before taking out a mortgage.
"Bankrupt municipalities can't put out fires. They can't stop thieves. They can't pick up trash and they can't maintain roads," Shellady says. "How much would your house be worth if your municipality was in that situation?"
This isn't to say your house won't be worth more someday versus when you bought it. But if you want a robust investment portfolio more than you want to buy a house, talk to a financial adviser instead of a real estate agent. Additionally, if you believe you're going to be in a house less than five years and want to sell it at a profit, most experts suggest it's safer to stick with renting.
Have you crunched all the numbers? Ron Throupe, an associate professor of real estate at the University of Denver, says the biggest mistake future homebuyers make is comparing a month's rent to a month's mortgage payment.
"Many people don't have all the numbers," he says. "There are many additional fees you need to include to make a fair comparison: the principal interest, property taxes, property insurance, homeowner-association fees and maintenance."
The maintenance, in particular, can't be underestimated, he says. As DeGaris found out, if your furnace goes out or a pipe leaks, you have to fix it yourself or hire a professional. And there are other ancillary costs as well.
"As a homeowner, you may find you suddenly need lawnmowers and snow shovels and new furniture," Throupe says. "It all adds up."
Can you handle the stress? "Most people weigh the financial aspects of buying versus renting, as they should, since it's the biggest financial decision most people will make. But one big factor to consider when buying a home is stress," says Tim Lucas, editor-in-chief of mymortgageinsider.com, an informational website.
Lucas says the Holmes and Rahe Stress Scale, a landmark stress study conducted in 1970, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28) and change in residence (No. 32).
"If someone has recently made other life changes such as marriage, which is No. 7, switching careers (No. 18) or having a child (No. 14), it might be wise to postpone buying a home," Lucas says. "Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It's better to rent if your life is in flux, and then buy when your stress levels are lower."
How old are you? If you're in your 20s or even your early 30s, there are some excellent arguments for not buying a house. Not that you aren't responsible enough to be a homeowner, but you're young, and who knows where life will take you? If you have a house, however, you may find that life can't take you to all that many interesting places.
For instance, a recent study from Dartmouth College in New Hampshire and the University of Warwick in the United Kingdom found that when countries start seeing a climb in homeownership, unemployment rates start trending upward within five years. Why? It may have something to do with homeowners not wanting to move somewhere else to find a job.
"The decision to own versus rent is very much a lifestyle decision as it is an economic decision. In most cases, it is driven by household formation – people getting married, starting families and being able to afford to do so," says Hollis Greenlaw, CEO of United Development Funding, a publicly registered, nontraded real estate investment trust in Grapevine, Texas. "Less than 40 percent of people under 35 years of age own homes, over 60 percent of people over 35 years of age own homes, and over 80 percent of people over 65 years of age own homes."
Indeed, DeGaris is 49, and while he says that "professionally, renting has served me well because I had the mobility to change jobs, which really helped advance my career," he is glad he finally bought his first house.
"There's a certain feeling of groundedness that comes with owning," DeGaris says. "That might not be rational, but it's palpable. The gutters need work but the roof still doesn't leak, so at this point, I'm still glad I made the move."
So what's the answer to whether it's smarter to rent or buy? It probably won't be a surprise to most people, especially those with several decades behind them. But as a general rule, the older you are, the more likely that it's smarter for you to buy a house. The younger you are, the better off you are being a renter.
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I am far and away of purchasing a home since I don't pull a lot of money to be able to afford it.
housing is so pricy in the US that many of us can't even afford a house,and the real estate agencies don't make it easy for people to achieve their dreams of owning their own place.that is why there are way more renters than owners throughout this country.
If you are the butterfly/runaround type, then rent!!
Actually it's just the opposite. If you're young buy. You have time for the house to appreciate in value, you build good credit, and you have a job to get a mortgage approved. If you are older rent. Your health may necessitate a move, your imcome is lower so you cannot take as much advantage of the mortgage interest deduction, and you don't want to be climbing up the ladder cleaning out gutters. .
I like owning a house. It works with my personality. I enjoy puttering around fixing things and gardening. I don't like rules. You have few relative to your house versus those that you have living in and apartment.
To me a house is not an investment. It is a nicer place to live with more square feet to wander in versus an apartment.
Financially, my house costs less bottom line - mortgage, property taxes, insurance, utilities, home refurbishment and maintenance - than the apartment that I was renting. My house bought in late May 2013 was $79.5K - 95% mortgage at 3.25%. It was built in 2005 on a 1/4+ acre plot.
The 1200 sq. ft. is twice that of my more expensive apartment. That is abnormal. In most areas houses and related costs are much higher than renting.
I specifically picked this area and house, because it was cost effective to do so. Property taxes are a miserly $750 a year, homeowner association fees are $70 a year, insurance is $600 a year. Year around average electricity costs are $100 a month versus $150 for the apartment.
A house costs a lot to maintain and takes a bunch of your personal time to do it. If you can't afford the real cost of buying a home and don't want to spend endless hours working no it, don't buy a house. Don't buy a cheaper old house or one that is affordable a long way from work. Old houses cost a fortune to maintain and repair. Long drives to work wear you out and sharply increase commutation costs.
If you buy a house, take care of repairs promptly. Little problems ignored can and often do explode into major problems. A poorly maintained house is hard to sell and sells for less when it is finally sold. Selling aside, it is nicer to live in a well maintained house than a poorly maintained one.
Don't spend a lot on improving your house. The money spent in most cases won't add to the value of the house. If it does it will only add a small fraction of the cost. If I added a garage, it would cost me $25K to $30K. It might add $5K to $10K to the value of the house. Make improvements that are necessary or those whose esthetic value to you is worth the cost. Use top quality materials that will last.
If you have a family and plan to spend many years in an area, I recommend buying a house, assuming it is affordable. You will have more control over your life and costs than apartment living affords.
I don't know why people would ever question the wisdom of buying a home if (1) the price was in line with your income, (2) feel grounded to a certain area (family, friends,ect) (3) work outlook seems to be good (4) children, they prosper from being raised and growing-up with life long friends and attachments.
When you consider the tax advantages of owning verses renting and the equity built in your home; there is no question about what you should do.
The future is never certain, nothing in life is certain. We can gamble on ourselves and our desire for a stable life. In the end, I thank if you chose wisely and thoughtfully, you will come out ahead by owning instead of renting.
One thing we learned from the recession is that not only can you buy a house and have that drop in value but that money you put into mutual funds and retirement accounts can be lost too. Right now banks and investment brokers are desperate to have people put their cash into investment funds and don't want to loan money. Hence all the talk about save money and don't buy anything. Be smart by doing your own research and using common sense, do what is best for you and don't listen to these articles. And be prepared to ride out the ups and downs of whatever market you are in.
Its just so hard to justify paying high rent for these people who need their mortgage paid. I can't bring myself to pay for a house that I won't be staying in permanently when i know that an apartment is cheaper and easier to move when I officially buy a house. Also, who wouldn't want to tell people in a fake southern accent "Get off my land!"
If you own, you pay your own mortgage.
If you rent, you pay someone else's mortgage.
As a landlord, I would like to thank Geoff Williams. Keep on renting folks. Us landlords appreciate it.
Individuals have to make this decision for themselves and each will of course see it differently, but the experience of being a renter depends upon most of all whether your landlord is any good. A bad landlord will not fix things on a timely basis, will hire shoddy service contractors or even flunky "handyman" types to do repair work cheaply (or often, worse yet, do it themselves). As a renter you have no say over such things as what type of air conditioning/heating/water heating systems will be installed. Yes, you can complain to authorities and hold landlords' feet to the fire to make them live up to the lease agreement but then, guess what? Your rent goes up on the next lease, or they just don't renew you. When you rent, one way or another, you are at the mercy of the owner. I've rented most of my life and had very few decent landlords. Most don't want to put the investment into their property to keep it as nice as a real homeowner would like to live in. Your landlord can sell the property at any time. You could potentially be forced to move whenever your lease expires. I got tired of living with those conditions and uncertainties.
There are other considerations, too. At $800 a month you're paying $9600 a year in rent. That's almost $100,000 in ten years. You will never see a penny of that again. It's like flushing money down the toilet. Even if your home declines in value, you'll get something back out of it.
Taking all of these things into account I decided last year to buy. Yes, my house needs a lot of work. I've already had to replace the furnace. But I chose what brand to install, chose a top-notch contractor to do the work, had it done in a couple of days. I don't have to worry about my mortgage payment going up. I didn't have to fight with a landlord to get the work done quickly and well. I don't have to worry about my landlord selling to some new person that I don't know. Finally, in the area I live in, to get a similar quality house I would have to pay about double the rent as I currently pay for my mortgage.
Again, everyone will have a different way of calculating these things. One size does not fit all. But for me, buying makes a lot more sense.
So, based on this.. I should buy my first house at 53 years old with a 20 to 30 year mortgage. So 20 years from now, I'm supposed to replace a roof, furnace or anything else right? Not to mention working until I'm 83 to make sure the mortgage gets paid off. Yeah, funny stuff for sure.