As someone who invests in property and property technology (proptech), I often get asked about whether someone should rent or buy a house. Perhaps the most important thing I can say about this question is that you (and your family) alone will need to justify this decision to yourselves. This decision is not purely financial and is multifaceted.
Many factors can impact your decision
The decision is also affected by economic conditions at that particular time, the interest rates, the demand vs supply situation in that area, the desirability of the neighborhood, including crime incidence, and other factors.
There are also work-related factors. Let’s say you need to move into a particular area because you got reassigned there. If your work there will be short term, then that pretty much skews the decision in favor of rent. However, if you have a long-term assignment and you like the place so much that you are thinking of eventually settling down even if you have to leave your current employer to start anew in that new place, then ownership is in your cards — but perhaps not during the first few months of your stay there.
If you are new to an area, you might be immediately impressed by the glitz and glamor that a neighborhood shows. But sometimes you will notice certain less desirable characteristics about a place after you have lived there for some time, so this is another reason to rent first before buying in a new place.
If you are single and find yourself spending money on useless things, then buying a home is also a good way to build your equity, especially if you really want to live in that place. But if you prefer to invest in stocks, bonds and other assets, then saving money by renting and investing in assets beyond real estate could also be a good thing, especially if you are unsure where you actually want to settle down.
Nonfinancial factors
There are also times when buying a house in a particular location at a particular time in your life could be good for you even if it is not great from a financial standpoint. For example, if your family is happy, you are making new friends, there are chance events that give you great new paths in life, your kids are growing up mentally healthy and you are all happy, then buying that house to make it a home is likely a good decision, especially if you will not have a hard time making the payments.
However, those same benefits can also accrue if you have found a great rental place and a good landlord, though you have less of a guarantee that you can enjoy those benefits long term.
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Financial considerations
Let us assume for a moment that both rental and ownership of the same house have the same tangible and intangible benefits, or that you are deciding to rent or buy one specific house so that the other variables are eliminated.
Even if you and your family like the house and the neighborhood and you want the pride and benefits of ownership, you must consider the responsibilities of ownership. If you rent, you are basically just paying the rent and your consumed utilities. As an owner, though, you are responsible for things such as fire and flood insurance, property taxes, homeowners association dues and the maintenance and capital expenditures to maintain and fix the house.
However, that house is your own castle. No one can kick you out of your castle, as long as you pay the necessary expenses, such as your mortgage and property taxes.
But if you hate the neighborhood and you feel you need to move elsewhere, you would need to also sell the house. Depending on the demand and supply situation in that area, selling your house could be quick, or it could take a very long time.
If you are renting, although you have rights that are stipulated in the contract, you are at the mercy of the landlord when it comes time to extend your rent or lease agreement. You, however, are not responsible for the insurance, the real estate tax, homeowners dues (though that depends) and the maintenance and repair of the house. That is for the landlord’s account. You are just using the property, and it is your responsibility to take care of the property outside of normal wear and tear.
You need to determine what you can afford
High interest rates mean that mortgages are currently a little above 7% for a fixed, 30-year loan. Of course, everyone wants to have the 3% mortgages that buyers before the pandemic were able to get, but we have to deal with the current reality.
People have other bills to pay, such as their utilities, fuel, food and health insurance, and some even have student bills. So if the monthly amortization increases by a few hundred dollars each month, that could impact your decision. If you are really tight with funds at that point in your life, it’s likely better to rent what you can afford and save the equity for a house when you can.
On the other hand, if you can get lower-interest loans from other legitimate sources, such as developers who are willing to offer monthly plans to sell their unsold properties, then that is something to consider.
The choice is up to you
Buying or renting a home is a personal decision for you and your family. It can vary depending on the situation and your financial ability and is perhaps one of the most important decisions you will need to make for you and your family’s future and well-being.
Either decision you make will have tradeoffs. It really depends on what is important to you.
