When you’re getting ready to be on your own and rent a place, it seems simple enough on the surface. Basically, you’ll need to be ready with a deposit and some extra cash to pay the utilities you’ll need installed, money for the move and a few other things. Buying a home is a similar process, but with a larger commitment; however, the property is yours.
So what’s better?
We asked personal finance and investing writer, Trevor Ewen, what his thoughts and recommendations are.
“Buying vs. renting is always dependent on your locality and the lifestyle you want. I do subscribe to the viewpoint that buying a primary residence is not an ‘investment.’ It is merely a lifestyle choice that has a chance at appreciation. Given that, there are many advantages to either choice depending on your situation, goals, and locality,” says Ewen.
Ewen’s Advantages to Buying
- Forced savings plan via building equity in your home.
- Interest rates are low right now, so ‘money is cheap’ as they say.
- Likelihood of access to better school districts.
- Mortgage interest rate deduction.
- Depreciation income tax reduction (though most of this money will go back into your home).
Ewen’s Advantages to Renting
- Someone else pays for major repairs… Someone else pays for contractors.
- No capital expense. This is probably the largest hidden advantage.
- Lower debt-to-income ratio (typically).
- More for your money (in some markets).
“New York and San Francisco are great examples of markets where rent to value ratios are low. In these markets, a typical mortgage in a desirable neighborhood is much higher than corresponding rent,” says Ewen.
- No property taxes. In places like NJ, CA, and TX, this is a big point of concern.
Ewen also says there are signs that where you want to live is a “Buyer’s Market” such as:
High rent-value ratios.
“Typical in cities like Memphis, Little Rock, Kansas City, and Cleveland. These are places where the rent is in a very high ratio to purchase price. Mortgages and taxes are usually lower than the corresponding rent,” says Ewen.
Low property taxes.
“Don’t shoulder a never-ending obligation unless it’s going to reduce your cost of living,” says Ewen.
“With lots of buildings and houses for sale, sellers are likely willing to negotiate,” explains Ewen.
So overall, remember that buying vs renting a home should be based upon your personal situation and think about where you’d like to be long-term.
If you’re thinking about moving in a few years or you know the career path you’ve chosen may take you elsewhere, you may not want to purchase a home. On the other hand, if the price is right and you will be able to sell later and make a profit, buying might make sense.
Consider all of your options and talk to local real estate experts. Research the areas that interest you and their affordability and even talk to local residents to weigh what the lifestyle is like. If you honestly consider what you really need and can afford, you’re sure to find the best option for yourself.