Should You Buy or Rent a Home? After all, times are looking up. The economy is taking off, a recent tax cut has put a little more money in your pocket, and more jobs are out there promising better career choices. It could be time to think about chucking that rent and buying your own home. That used to be the American Dream. It took a beating after the home price and mortgage crash that began back in 2007. It wasn’t until 2010 that the market started coming back, and now just about every real estate market has come back to pre-crash price levels or higher.Use this article as a kind of checklist of considerations that can help you deiced buy or rent a home. It isn’t all about money. Lifestyle and employment factors are in play, and home buying is possibly the biggest financial decision you’ll make in life. Think about these things and it should help.
Is Your Home an Investment?
Previous generations considered their home an investment when they decided to Buy or Rent a Home, an asset for their future retirement. For many baby boomers, that was indeed the case, as they enjoyed a boom in home price appreciation for decades. They made their payments, stayed in their homes for 15 to 30 or more years, and they cashed out with some significant cash. You, on the other hand, should not consider your home a retirement investment.
That’s not to say that you will not enjoy value appreciation, but most economic experts say that the boom appreciation days are over, not to return. Scaling down your overall appreciation expectations should give you a more realistic outlook. Even working with the moderate economic predictions of 3% to 5% appreciation in home values over the next decade, there is the expense piece of home ownership.
Over the life of your home, you’re paying mortgage interest, insurance, repairs, maintenance, property taxes, and the costs at closing on both the buying and the selling ends. You can find a number of “Rent versus Buy” calculators on the Internet, and with interest rates still at historically low levels, you will find that depending on where you live you will get results that buying is less expensive than renting. Notice that this still doesn’t make renting a better choice unless you plan on investing the money you’re saving.
How Long Will You Be There?
There are costs of closing on a home as well as those costs of ownership. Selling the home by listing it involves real estate commissions too. With this in mind, various sources estimate that you must stay in a home from 5 to 8 years to break even. Of course, this just goes back to the previous item; breaking even isn’t a great investment.
Do You Want Control of Your Living Environment?
Now you’re swinging the other way. When you rent, you have little or no control over what you can do with your home to make it yours. You can’t decorate it the way you want if it involves painting, wallpaper, or other structural changes. Many leases even tell you how you can hang wall art to minimize holes in the walls. If, like many home-buyers, you look forward to customizing your home to make it uniquely yours, it’s not going to happen if you’re renting.
This can be enough to tip the scales in favor of buying, especially if you can roughly break even over your time of ownership. Even if you spend a little more to own, being able to improve the home can make up the difference and even add some profit when you sell it. After all, you have to spend a big chunk of your life in this home, and it’s going to be a lot more enjoyable if you can make it the way you want it.
Will You be a Financially Sharp Buyer?
This is probably the most important item in this checklist. Your decisions in home selection and negotiation can make all the difference. This usually involves some compromise. You usually cannot find that “perfect” home with everything you want at a bargain discount price. You pay up for those hot new features.
If you can compromise, look for homes that may need a little cosmetic TLC. Or, look for the smaller home in a neighborhood, or one without the features in most of the other homes. You’ll do far better at resale time if you bought the 2-bedroom, 1.5-bath home in a neighborhood of mostly 3 or 4 bedroom homes with 2 or more baths. You’ll pay less on the front end and get a faster sale on the back-end because you’ll have a lower price entry into the neighborhood.
All considered, the American Dream is still alive and well. Do your homework, balance what you’d love to have with what you can improve to get what you want, and you can own and enjoy the time you spend with family and friends. At the end of the day buy or rent a home decision can have a profound impact on your long term finances.
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