Buying vs. Renting
Buying vs. RentingPosted by Korman Res | Buying vs. Renting
Are you on the fence about whether to buy or rent? As we all know, home ownership has long been considered part of the American dream. For many, it is a rite of passage – a symbol of settling down and planting roots. Although conventional wisdom tells us that buying a home is one of the best investments a person can make, this isn’t always the case and certainly isn’t without caveats.
Buying a home is certainly one of the largest financial investments a person can make in his or her lifetime. But after scrimping and saving for a down payment, some may be surprised to learn that there isn’t much left over each month after the mortgage, utilities, maintenance and other ancillary costs are paid. In many cases, home equity ends up being the only significant source of wealth that a person has. When you consider the volatility of the housing market and the increase in foreclosures and underwater mortgages in recent years, you may find that putting all your eggs in one basket is too much of a gamble.
The fact is that it takes years to build equity in a home. Unless you’re lucky enough to buy right before a housing bubble and are able to sell at the top of the market, chances are you’re going to have to retain ownership for many years before you accrue significant equity. This is fine if you’re planning to stay put for the next five to ten years (or longer), but what if you’re not sure where you see yourself in five to ten years?
One advantage of renting is that it provides flexibility that home ownership just doesn’t offer. For example, if you were offered a promotion or a new job that required you to relocate, how difficult would it be for you as a renter? How about as a home owner? What if your mortgage is underwater and you’re unable to sell? These are questions to consider before you make the decision to buy.
Another advantage of renting is that it can allow the renter more financial liquidity. For Generation X and Generation Y, this is an especially attractive idea. These younger generations have amassed substantially more debt than previous generations due to student loans, credit cards and high unemployment rates. As a renter, you know what your monthly expenses are and there are fewer liabilities and surprises. That may make it easier to pay down debt, save, or invest. As a homeowner, an unexpected roof repair or broken furnace could set you back thousands of dollars.
There are many pros and cons to consider before making the decision to purchase a home. For some, making the right decision may seem daunting, but if you are realistic about the financial and time commitments, it can be a very wise investment. However, if you decide that it isn’t the right time to buy, renting certainly has its advantages, too.