Four Things to Consider When Deciding Whether to Buy or Rent Your Next Home
When it comes to deciding whether to buy or rent your next home, there are a number of different things to consider. Renting a property can offer a lot of flexibility that owning a home can't, like the option to move at the end of your lease and not being responsible for any major repairs. But owning a home is associated with plenty of benefits as well, like the ability to build equity and take advantage of certain tax breaks. So, how do you decide which one is the right choice for your situation? Our experts discuss the aspects to consider to help you come to an informed decision.
Compare the costs of renting versus buying.
According to Dana Bull, a Boston-based realtor who specializes in millennial and first-time home buyers, it's impossible to compare buying versus renting in a way that is apples to apples because there are too many variables. "For my clients, I recommend that they keep it simple by comparing PITI (principle, interest, taxes, and insurance) versus what they pay in rent," she says. "In addition, they should consider having a nest egg to pay for property repairs." If the cost of a monthly mortgage payment is close to what Bull's clients would pay for a rental, she tells them there is a strong argument for buying in lieu of renting. There's one caveat, she says: Any prospective homeowner must feel ready to embark on this new journey.
Renting can be the smart choice for some.
Bull says that renting normally makes more sense if you only intend to occupy a home for a short time, and that's because of all of the extra fees and stress associated with buying and selling real estate. If you're planning to move again in less than two years, renting is probably the smart choice for both your wallet and your sanity. "However, across many markets property values have increased so rapidly that this advice may not apply," she says. "For example, many of my clients have profited despite only owning a home for a year or two." Of course, right now is hardly the norm, so cautious buyers should remember the traditional advice that if you're planning another move within a short period of time, renting is likely your best option.
Know your goals.
Before making a major financial decision around whether to buy or rent your next home, Bull says you should map out your long-term financial goals. "The type of property that you buy and the overall budget should fit into the big picture," she says. "For instance, buying the dream house may be a top priority, but at what cost? There can be many competing financial responsibilities like paying off student loan debt, saving for a wedding, kid's college tuition, or retirement." Her advice is to examine all of your goals and finances together, and let that information dictate whether you're better off making a home purchase, and what that will look like for when it comes to the big picture of your budget.
Consider the pros and cons.
There are up sides and down sides to both renting and buying, according to Michael Sadis, licensed real estate agent and founder of IN*HOUSE Real Estate Group, which is what makes it such a uniquely personal choice. "Currently, [they're] still historically low so you'll get more bang for your buck right now," he says, adding that the flipside is that inventory is low so, you could end up paying more for a home if you buy right now. Of course, when you're renting, there are a lot of up-front costs as well. "First months, last months, security, and sometimes realtor commissions," he says. "That could equal a down payment on a home when you add it all up!" Deciding whether to rent or buy is a major decision and may not be clear-cut depending on your specific situation. Many people may benefit from talking to a real estate professional like a mortgage lender, realtor, or housing counselor to help them decide which option is the right one.