Should you buy a home? Or should you rent? The answer is….it depends. You need more than just a basic comparison between monthly mortgage and monthly rent to show you which would be best financially for you. Plus there are other reasons you might be better off renting than buying and vice versa.
Financially, most people think of the difference in monthly costs between a rental and a mortgage, but there is more to it than that. Zillow, the online property price comparison site, has developed what they call the break even horizon. This is the amount of time in years you need to live in a house in a particular geographic region in order for it to be less expensive to own your home rather than rent. And this includes the very popular mortgage tax deduction that we are still enjoying for the time being.
Zillow looked at appreciation/depreciation costs, maintenance costs and utilities, as well as transaction costs, such as closing costs.
For some areas of the U.S. (and you can probably guess where) you would need to keep your home for at least 4 or 5 years before the break even horizon occurs. Unless you know you will live there for many more years than that, it makes more sense to rent. In other areas, you may only need to keep your home for 1.5 to 2 years. Unless you have a tendency to relocate frequently, you would be much better off buying your home in those areas.
But there are other reasons for weighting your decision toward renting or buying depending on your own personal needs, circumstances, habits, and desires. Do you have children? Pets? Kids and pets can cause rentals to be more expensive or harder to find. And kids do better with stability, so buying a home can have more advantages.
Are you home a lot or do you travel for work? Maybe renting is best so you don’t have to try to maintain the place while you are gone. At least you know the landlord may be around to keep an eye on things.
Do you want to take the gamble that the home you just moved into won’t need too much maintenance? Or would you rather someone else takes care of the place? Maybe you enjoy fixing things or have the money for someone to fix it for you. But if you aren’t handy in the tool department or just don’t like having to worry about it, renting can be a better option.
Are you the type who wants the freedom to change the home to suit your tastes, including putting nails in the walls, painting, and changing out the carpeting and light fixtures? Or do you not care as long as it’s comfortable? Many rentals won’t let you make anything more than light cosmetic changes or you can kiss you deposit good-bye. Buying would be more suitable. But if you don’t care or don’t plan to make changes, renting will probably be a comfortable choice.
If the bottom line is your only measuring stick, you just need to remember that the longer you can stay in your home, the more cost-effective it is to buy versus rent, at least when the real estate market is behaving normally (no artificially inflated prices or busts in home sales). Just keep in mind that amount of time differs with where you live.
If you have other priorities than money, this should give you something to think about while you look for your new place to live.
* Image courtesy of stock.xchng
