From the start, you the reader know that as a real estate agent, I am going to be a proponent of home ownership. That said, owning a house and the responsibilities that come with it is not for everyone. Today we will be looking at some of the advantages and disadvantages of each, so that you can make an educated decision on whether purchasing a house or leasing makes sense for you.
There are two major areas of your life that will determine which is more suitable. Those are your chosen lifestyle and your financial situation.
We will begin by looking at the lifestyle choices that may affect your decision.
Flexibility or stability in location
While some people want nothing more than a “forever home”, others prefer to relocate frequently. This can be due to working in an industry that requires frequent moves, a desire to consistently live in “hip” neighborhoods, having the ability to relocate without hassle if the neighborhood goes bad, or just having the heart of an adventurer and wanting to live all over.
Given that we know that homeowners move every seven years on average, this gives you a benchmark for that consideration. If you only want to live in a given place for 2 or 3 years, renting is probably your best option. If you prefer to put down roots and stay in one place for longer than that, you should chalk up this category to buying.
This is an area that flips the flexibility vs stability equation around. The reason for this is that most landlords are not going to allow a lessee to make changes in carpet, paint colors, to the structure, or the landscaping. It is not cost effective for them to return the home to an easily rentable neutral color scheme, and they are not typically willing to risk damage to the property through other changes.
So if you are one of the many people who like to personalize your home inside and out, this section would go into the buy column. If this is not important to you, then renting would not be an issue
While this could very easily be addressed with hiring contractors, that solution can be expensive so we will assume all of your minor household repairs will be DIY. Over the years as a homeowner; you may find yourself needing to be a plumber, finish carpenter, painter, fence installer, carpet cleaner and an electrician. Some people are more handy than others, and some are willing to learn on the fly. If you are not intimidated by making these repairs, then being the repairman as well as the king of your castle should be no problem. If you don’t have or want these skill sets, nor have the financial means to hire contractors…renting may be the better option.
As a caveat to this; remember that when you rent, the landlord decides the size of the water heater, the furnace, the AC and when these things get fixed. When you own, these choices are yours to make and to have done on your schedule.
This is last but definitely not least amongst the major lifestyle factors you need to consider before deciding to lease or purchase a home. If you have four legged family members, finding a rental property that will allow them to come along without outrageous deposits or other fees can be daunting. This is perfectly understandable because some people are irresponsible and those peoples pets cost landlords a small fortune with every move out.
Given that no one would ever want to be in the position of being homeless or having to abandon a pet; if you live with pets, ownerships is by far the better option.
Now to look at the financial considerations for buying vs paying rent.
This is a topic that is hotly debated by smart economists, and we cannot pretend to fully answer it here. What we can do is go over some of the things you will want to weigh when choosing a path. So here we go.
Short term money
Even people who want to be homeowners are sometimes trapped into renting by their current financial situation. Whether they have changed jobs too recently, don’t have enough cash available for a down payment, don’t have the necessary “reserve” savings to acquire financing, or have other financial difficulties; sometimes buying is just not an option right now.
On the other hand, some of these people can buy a home and just aren’t aware of the options they have. Between FHA loans being available for a mere 3.5% down payment, and local programs (such as INHP here in Indianapolis) designed to help lower income people purchase a home, there is usually an option available for someone who wants to work towards home ownership.
Simplicity or complexity
A lot has been written and said about the cost breakdowns between owning and selling. People are constantly debating paid utilities against mortgage interest deductions, property taxes, maintenance and every other expenses incurred when one owns a home.
I reduce it to this. If you are renting, the expenses of ownership are built into your rent payment. Landlords are businessmen and are not ever giving you anything for free. So the real question is, do you want the simplicity of one simple bill each month, or are you more interested in managing the financials of your home yourself with the goal of coming out a little bit ahead?
Long term costs/benefits
Besides all of the shorter term financials we just discussed, there are a couple of long term financial differences between renting and owning that we need to weigh.
The first is long term housing costs. Lets say you move into a house and stay there for 15 years, and your brother rents. Lets also say that in the beginning all things were equal and both of you were spending $12,000 per year on your housing. So $1000 per month.
If we assume very low inflation of 1% per year, at the end of that 15 years your brother will be paying $1160.96 per month in rent and your mortgage will remain $1000.
In addition to that, you would have the option over that period of time to make advance payments and refinance, thereby lowering your payment and your brother would not.
The other long term consideration is equity. Even if you are not someone who desires to build wealth for wealth’s own sake, home ownership is one of the few forms of true wealth. I say this because it serves on of our most basic needs, and other than property taxes, once its paid for, it is yours.
When we consider just financial wealth we should note that according to the Federal Reserves Consumer Finance Survey of 2010, homeowners showed a average networth of 34 times the amount of renters ($174,500 to $5100). While I am sure that there are other demographic issues which are related to this figure, it is noteworthy and a clear indicator that homeownership benefits your bottom line over time.
Speaking of time,
As with all business decisions, whether purchasing a home or leasing is a good financial deal frequently comes down to timing. Interest rates and home values both fluctuate constantly, as do rent prices. In our current market (early 2019 Central Indiana): rent is high, interest rates are fairly low to moderate (around 5%) and while home prices have increased dramatically over the last couple of years, owning a home in Indianapolis is still very affordable.
Given that information, the long term prognosis for buying a house now is very good. The same may or may not be good in the next several years.
Summary of Renting Vs Buying a home
Wrapping this up, there are a lot of different factors to consider when deciding whether you would like to own your own home or rent someone else’s house or apartment, but unless you fall into one of the very specific pigeon holes that make owning not right for you… home ownership is much more beneficial than renting.
If you would like help on your path to home ownership, be sure to call me at 317-657-8059