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Buying vs. Renting

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.

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. No longer the case, houses can go down just as easily as they go up.

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?

The biggest mistake future home buyers make is comparing a month’s rent to a month’s mortgage payment. 

Many people don’t have all the numbers. There are many additional fees you need to include to make a fair comparison: the principal interest, property taxes, property insurance, home owners association fees and maintenance.

The maintenance, in particular, can’t be underestimated, 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, 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.

If someone has recently made other life changes such as marriage, switching careers or having a child, it might be wise to postpone buying a home, 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 20’s or even your early 30’s, 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 home ownership, 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. 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.

There’s a certain feeling of groundedness that comes with owning. 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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