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Should You Buy or Rent Your
Next Home?
Whether you should rent or buy in today's real estate market has less to do with external factors such as the economy, interest rates, or who's running for President than it does with your own “internal” factors. What decision you make may be determined by your willingness to accommodate the required maintenance involved with home ownership, your willingness to alter your budget to afford a home, or the amount of risk you're willing to tolerate a real estate investment? So, there is no single answer to the question “Rent or buy?” because it depends almost entirely on who is asking the question.
The following are a few helpful questions to ask yourself if you are trying to decide whether to rent or buy your next home.
- Is the freedom to pick up and move to a new leased apartment or home at the end of an annual lease term important to you? If so, then the process of selling and buying a new home on a frequent basis may not be the ideal choice. Home ownership normally requires a degree of stability and commitment that is not as important when leasing a home. When you purchase a home, there is a substantial initial investment including the down payment, closing costs, and renovations. It typically takes between five and seven years to recover your initial costs. And depending on your loan payments, it may take a few years before you begin to see a return on your investment.
The freedom associated with leasing comes with a financial price in the form of equity – or the absence of it in the case of a leased home. Rental payments never accumulate as ownership equity in the home. Home mortgage payments, on the other hand, do build ownership equity on top of any increase in value your home benefits from in a favorable housing market. And finally, interest payments on home mortgages are fully tax deductable in most states.
- Do you prefer to let the property owner be responsible for the cost and hassle of maintenance and major upkeep of your leased home? If so, then the maintenance and upkeep overhead associated with home ownership may not appeal to you. Any homeowner will tell you that “the work is never done” when keeping a home in top condition. Furthermore, your investment-minded neighbors will usually insist that you maintain your house and property to neighborhood standards – whether you want to or not! Despite the overhead of home and property maintenance, the reward comes at the end when the time comes to sell the house. As an owner – instead of a renter -- you can take your equity and increased value out of the house and invest the money in a newer, larger home elsewhere.
- How well can you tolerate risk? As with any investment what goes up can come down. An investment in a home is no different since its value can be effected by any number of factors – some of which are impossible to predict. However, if you lease your home you will have one less thing to worry about since you will have no investment at risk. About the only thing you will worry about is whether the rent will go up next year. So, if you prefer not to assume the financial commitments and risks associated with home ownership then you should probably continue to lease your home rather than buy.
On the other hand, with risk comes reward. If you commit to making informed decisions about purchasing a home -- preferably with the help of a competent real estate professional -- then you will likely be on your way to home ownership in spite of the risks. For the long term, real estate has – and always will -- represent a very strong investment overall.
- Can you really afford homeownership? If you are on a tight budget it may not be wise to have the added pressure of maintenance costs, property taxes, and insurance. If your credit rating is in need of repair, or you have a high debt to earnings ratio, now may not be the time to purchase a home. Although you may find a lender, your loan may be at a much higher interest rate using a sub-prime lender. You might be better off taking another year to build your credit score and decrease your debt.
Although homeownership has its benefits, make sure it’s the right fit for you depending on your financial and personal situations.
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This helpful guide was produced by Prudential Ballard Realty, Inc. -- a leader in residential sales and leasing in the greater Montgomery, Alabama area. You can contact Prudential Ballard by calling (334)
277-8920 or by visiting the web at
http://prudentialballard.com . You may also contact Prudential Ballard via e-mail at
info@prudentialballard.com . Prudential Ballard Realty is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity.
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