Buying is often cheaper than renting, but the amount you’ll save depends on where and how you live.
For many people, moving time means decision time: Do we buy a house, office building, apartment or find a place to rent? This dilemma isn’t just a young people starting out the problem but also has established professionals relocating for a job scratching their heads. In some cases, people who are used to living in a big family house, face this same dilemma when, for one reason or another, they s
ell the big family home and have to find alternate living space. There’s also the consideration of having children. If the house is currently not large enough to accommodate extra tenants (babies), is there an option to extend the house to suit the new additions to the household? How will that affect the rent? Would it be better investing that in your own legally-owned house?
When it comes time to decide whether to buy or rent, a combination of practical and financial factors have to be considered.
There are calculators and other tools that will help you weigh whether to buy or to rent available online on many different sites but while these calculators may take into account some pertinent information like how long you plan on living in the new home among other things, none of them takes into account all of the personal factors that affect an individual’s decision.
Here are seven questions to ask yourself when determining whether buying or renting is best for you.
- How long do you expect to be in the home? You should think very far ahead when it comes to your accommodation: do you plan on staying for less than a couple of years or longer? The longer you plan to stay in the new place, the better off you are buying it outright. That’s because, in the long run, it might be more cost-effective to buy considering the increments in rent that will inevitably happen annually or even semi-annually in some cases, making it more sensible to buy it at the current market price and not worry about paying higher rents year on year. If you plan to stay less than five years, you might want to rent instead.
Would you be better off financially if you spent the money elsewhere? You should also consider your opportunity cost. Would it be better to invest the money you’d use for buying a house in a profitable (hopefully, risk-free) venture? That way, you could still afford the same house or a better one some years down the line and still have extra left over to do with as you please.
- How stable are your job and your life? If you’re not a permanent employee or if you’re not earning enough to justify the cost of buying a house, you might have to consider renting instead while you get your financial situation sorted out since even mortgages won’t be available to you until that is done. Additionally, if you’re involved in a long distance relationship that makes you commute out of town periodically, you should consider renting over buying if there’s a high chance of getting hitched with your partner and moving to live in their town or city. Buying a house and selling it a year later to relocate is likely to cost you more money than it’ll make you.
- How do the monthly costs compare? I know most people hate math. But to save yourself some headache, it’ll be prudent to do some real math regarding a comparison between the total monthly costs over the entire period you would rent against the cost of buying the property outright.
- Do you have savings for a down payment? Some realtors and developers allow for as low as 20% down payment to buy a house and have the rest of the money spread out over a period and at an interest rate. This may seem attractive but in a competitive market, you may find sellers choosing offers with higher down payments shorter periods for the payment of the remainder. Also, keep in mind a higher down payment means lower amount remaining to pay, so it has its upsides. In the event you’re going for a mortgage, you should consider the same things in making your choice.
- Do you have reserves to pay for repairs? Real estate is a profitable investment, and like all investments, it’ll cost you money. Whether or not your house is brand new, you’ll most likely have the need for repairs from time to time: Leaky pipes, insect infestations, faulty wiring, etc. You need to have some of such charges factored into your savings before buying a house since these would be costs borne by your landlord/landlady if you were renting, you need to make arrangements for paying for them as they become a cost borne by you as an owner.
- Would you be content if circumstances meant you had to stay longer? Some people decide to approach house-buying like they do with cars. They settle for a less than an ideal house, thinking it’s a “starter” house, and a few years in the future, they can sell it off for a profit and buy the house they really want. While this philosophy might be great for buying cars, in the case of real estate, you might get stuck with a house worth less than what you originally paid for it, especially, if you can’t afford to maintain it to match the latest trends in the industry. It’s even worse when you take out a mortgage to pay for it and are in arrears on your payments. It is true real estate almost always appreciates, but it may not be at the rate you expect, and as is the case in every situation where “almost” describes it, there’s the possibility things won’t pan out as expected. So, it’s wiser to buy a house you see yourself occupying for at least the next decade in relative comfort.
Making the decision to rent or buy is not one to be taken lightly. But hopefully, this article has been helpful in ordering your thought process to arrive at the right decision. We’ll supply you with some pros and cons of renting and buying in the coming days. In the meantime, if there are some other pertinent questions we missed, please let us know in the comments below.