There’s Opportunity in Buying, but Is Renting the Smarter Choice?
The question of whether to buy or rent a home is a vexxing one for people these days. On one hand we visualize how exciting it would be to own our own home and how much wealth we’d enjoy in 40 years ahead and how amazing our retirement would be.
And on the other hand, we think about the risk of buying at a high point in the real estate market along with the high costs of owning.
For more than a hundred years, the belief in home ownership has been a big part of the American dream, and the dreams of people in all nations. That however, might make people buy because “you’re supposed to buy a home.”
However, a lot has changed in the last few years to put in question the value of buying a home or condo despite rising apartment rental prices.
One recent blog post suggests the whole issue of buying vs selling is a moot point. However, for a family or young person considering buying a house at todays lofty prices, at an uncertain point in the economic cycle, this is a big risk. Big rewards and big risks for those who buy.
The US is Now a Renter Nation
More people rent than buy today and the rental housing investment market is hot. That’s more due to high home prices and a lack of single detached homes available. Many buyers don’t consider an apartment or condo a solid long term investment. So they will hold off buying until a low rise type of property is available.
The rental property phenomenon is strong because investors are buying properties to rent out. They get the income earnings benefit, capital gains later, along with tax benefits. That’s dried up housing availability and raised prices.
It’s not an inviting scenario for hopeful home buyers with simple wishes.
Does Buying Really Deliver Value?
A lot of us, including babyboomers and millennials are reconsidering whether a purchased home can deliver the financial and lifestyle value we expect. Will we be happy if we’re mortgaged to the hilt and have to live mortgage poor?
Will the local housing market crash leaving us with an underwater mortgage and a thought that we won’t break even on equity for a decade? Are we better off in the stock market?
There are many who truly believe a home is also a retirement savings asset, while others suggest that you can’t eat a house when you’re 65. Many seniors today can’t sell because there’s nowhere to go.
Compare the Key Benefits of Buying vs Renting
The Benefits of Buying a Home or Condo
- creates long term wealth accumulation
- tax advantages
- rental investment income possibility
- greater feeling of security and stability
- interest rates are low currently
- it may be cheaper to buy than pay high monthly rental rates
- if you divorce your spouse, it could create severe losses
- there is a housing crisis and big demand for any home or apartment should push prices higher
- real estate as an asset has performed better than any other asset type in the last 30 years (if you consider tax writeoffs, price appreciation, and rental income, it outperforms by far)
The Benefits of Renting a Home or Apartment
- no downpayment stress
- no worry about mortgage commitments
- no high cost of house and property maintenance
- no worry of buying a money pit
- no worry of mechanical breakdown
- freedom to travel and move
- many buildings and condo complexes have fitness centers and swimming pools
- no worry of real estate market collapse
- unemployment doesn’t mean you could lose your investment
However, we’re asking if buying a house right now in 2018 is wise or does renting a condo or apartment make more sense.
Major Considerations before deciding on buying or renting:
- whether this is the right time to buy for you personally and emotionally — do you really want to be tied down to a house and property with all the stress and responsibilities?
- will you be marrying and raising a family? — can you raise children well in a high rise condo or a downscale neighborhood where you can afford to buy?
- how much can you can afford, or can you really afford it all — prices are so high in cities such as San Francisco, New York, Miami, Dallas, Austin, San Antonio, Denver, Seattle, San Jose and Los Angeles for instance, it may take all your income to pay for the cheapest.
- how high will mortgage rates will climb — can you pay your payments if they rise by 70%?
- how much other debt do you have? — do you have student loans and credit card debt to add to your mortgage payments?
- alternative investments — what else could you invest in right now with your downpayment (bitcoin, startups, gold, stocks)?
- should you buy to rent out yourself? — rents are rising fast with very low vacancy rates ensuring a positive cash flow
Buy vs Rent Cost Calculator
To get a better view of your buying vs rent decision, try out the rent vs buy calculator from the NY Times. This widget still requires your input on forecasting a few things, yet it might help clariy the pluses and minuses for you.
While you’re weighing whether to buy or rent your home, it might be important to defuse the pressures such as what you’re “supposed to do.” Here’s a few don’ts to ponder:
- Don’t buy because you think it’s an investment, unless you plan to rent it out. Don’t buy because that’s what your friends are doing.
- Don’t pay the going asking price because the seller thinks it’s worth that much. Consider why they’re so eager to sell right now.
If you buy right now, you’re paying a speculation price. If you do buy, only buy at an affordable price for a home, condo or apartment.
The only exception to this would be to buy an investment rental property. When your property earns big income from hungry renters with few rental options, it’s a good investment for the next 5 years. If you have to sell it, you’ll likely see a positive ROI.
Good luck with your decision. And if you’ve thought it through and are confident about your choice, feel good about what you’re doing. Being positive is a must for anyone.
See also: 2018 Apartment Rental Market | Apartment Rental Prices | Best Cities to Buy Investment Property |Apartments for Rent | Renters Insurance | Texas Rental Housing| Reduce Tenant Turnover | Property Management Software | How to Screen Tenants | Raise Rent for Property Managers | How to Increase Property Cash Flow | Property Management Business | Tax Savings for Property Managers | Real Estate Portfolio Tips | Starting a Property Management Business | How to Use Property Software | ManageCasa Cloud Based Property Software