We’ve already written about the fact that home ownership is the key to building wealth. That said, there are times when it may not necessarily make sense to buy. Vice versa, you may be renting when it makes far more sense to be paying a mortgage and owning your home.
You’ll want to take into a consideration a number of factors such as how long you intend to live in the area, the additional costs of home ownership, your savings, your current lifestyle, your job stability and so much more.
How can you be 100% sure that you should buy vs rent? Well, life isn’t that simple. Read on so we can help you make the best decision for you.
Pros of Renting
Depending on your market, it may make sense to rent vs buying a place. I live in Manhattan where a studio apartment in Manhattan costs over $700,000 on average! Sorry, I need a moment.
You may live in a similarly priced market such as San Francisco where home prices are, in a word, absurd. Perhaps you should consider renting if you have to be in the city for your job.
Flexibility: At the most, you’re bound to a 12 month lease in a rental apartment. You can pick up and move cities for a girlfriend or boyfriend or simply a new climate at any time.
Or maybe you’re a dedicated professional who works for a company with locations around the country and need the ability to move locations for a potential promotion. These are just some of the reasons why it may make more sense to rent.
Or maybe you’re an entrepreneur who needs to put your money into your business. Buying a home ties up a lot of capital, especially upfront for closing costs, commission, taxes etc…, so it may not make sense to buy just yet.
If you’re a home owner who is in a 30 year mortgage, you will feel more tied to your location as you want to take care of your property and may not want to rent it out from afar.
Cons of Renting (aka you should Buy)
Then theres the flip side where it makes sense for you to buy. More often than not, it makes sense to own – regardless whether it’s a business, a car, or a home. Ownership is the key to building wealth. Equity. A fundamental business concept.
The NY Times has a rent vs buy calculator you should take a look at. We have written about the huge financial upside of home ownership and of its importance to building wealth here.
You build financial stability by owning your own place, don’t answer to a landlord who can kick you out at any time, and can do whatever you want with your property because…it’s your property!
Your monthly amount is tied to your mortgage that you agreed to with your lender. Your monthly costs are under your control and are not subject to the whims of the landlord. The exception is if you live in a rent-controlled building of course.
Partial flexibility: Worst case scenario, if you do need to relocate you have the ability to rent your place out. As a matter of fact, there are millions of people who buy properties solely so they can rent them out and earn passive income.
This is another great option for building wealth as you acquire several properties over time that may earn passive income for many generations to come. Best of all, this income is tax sheltered in many cases.
The specific tax laws around capital gains are outside the scope of this article but suffice to say that homeowners receive many breaks and benefits that you should look into.
Of course you’ll have to deal with home ownership costs such as property taxes, maintenance, HOH fees (if you live in a condo) and more. And though homes tend to appreciate on average, particularly over the long run, there are no guarantees in life.
There’s risk in almost everything we do, but buying a home, relatively speaking is nowhere near as risky as buying stocks, for example if you’re in a stable market.
So do some homework, talk to your friends, neighbors, or better yet one of our partner realtors who know our market inside and out, and find out whether home ownership is right for you.