If you’re considering a move, you might be trying to decide whether you should rent a home (or condo or apartment) or buy a home. It’s a complex decision, that’s for sure. Given the current economy, many people are taking the rent vs. buy choice very seriously. But keep in mind that determining whether you should rent or buy involves more than strictly finances. Read our expert advice so that you can make an informed decision about whether you should rent a home or buy your own.
If you’re in the position to make a choice between renting or owning, you should carefully think through your options and consider the variables. Below are a few issues you definitely shouldn’t skip when deciding to rent a home or buy your own.
Look at your budget when you’re assessing the rent vs. buy decision. Leslie H. Tayne, esq., attorney and consumer finance specialist, points out that you generally need some room in your monthly budget if you’re planning to buy a home.
“These days, with finances what they are, and with people being in financially restrictive situations, it makes it more difficult to be a homeowner,” explains Tayne. When you own your home, there are many dynamic expenses to consider: Maintenance, repairs, water bills and more. Tayne points out that sometimes for families with children, unexpected expenses come up, making it more difficult to also have unexpected expenses related to your home.
“There’s no point in buying if you can afford the payment but not the expenses,” says Tayne. “We recommend having six to nine months of living expenses — cash — in the bank to buy. That’s a very conservative dollar amount.”
Beyond the finances
When you’re considering whether you should rent or buy, don’t forget to look at potential neighborhoods in terms of your ability to socialize. “If you are a single woman, for example, who is purchasing a home in a mostly family neighborhood, you might find a limited amount of socialization. In a rental situation, you might find more single people,” says Tayne.
When people think of families, they often jump to the conclusion that owning is best. And sometimes it is — but consider another possibility. “There are rental opportunities within family neighborhoods,” explains Tayne. “Those are great opportunities because families might be able to rent where they couldn’t afford to buy. You might also be able to send your kids to a better school.”
Your safety should always be at the forefront of your mind if you’re in the position of making a rent vs. buy decision. Some communities, such as apartments, have a more transient population. “There could be residents who have subleased. Or it might be a community that didn’t take the time to look carefully at individuals who are renting,” Tayne points out.
This means that your neighbors could move in and out regularly, giving you little opportunity to know who is living right next door. “Purchasing lays downs stronger ties,” Tayne says. “Some people who [buy a home] might be more open about who they are.”
Your situation and goals
Don’t forget to consider where you feel your life is headed in the next few years when determining whether renting or buying is best for you. Are you married and planning on having children soon? Buying a small home that won’t accommodate a family isn’t a great idea if you’re planning to have a baby (or two or three) in the next few years.
What about your career? Are you planning on moving wherever the next big career opportunity is when it presents itself? If so, renting might be your best plan for now. You don’t want to be stuck (or lose money on a purchased home) if the dream job you’ve been chasing becomes available — on the other side of the country.
If you’re considering an apartment rental, stability probably isn’t an issue. But if you want to rent a home or condo, keep in mind that beyond your initial lease — usually one year — there’s no guarantee of stability. Ken Koenen, esq., LLM, of the Law Office of Ken Koenen, notes that the owner could decide to sell.
Additionally, it’s not unheard of for a homeowner to lease out his home and collect rent but fail to pay the mortgage. Sometimes renters are unexpectedly evicted because the home is being foreclosed on. Know your lessor to the best of your ability.
Make a smart decision
Make your decision to rent or buy after careful thought and analysis of your life, including your financial position.
“I still believe the best investment one can make is in their own home,” Koenen says. “The problem arose when people were getting into homes that were much bigger than they needed, and that they couldn’t afford without ‘liar loans.’ ” His take-home message is simple: Only buy what you can afford — totally logical, but something many Americans didn’t do.
And, of course, there’s nothing wrong with renting if that’s what works best for your life right now. The point is to make the best decision you can with the information — and resources — you have.