“Buying versus Renting”


For those who are able to buy a home-- meaning those whose credit is reasonably good and whose incomes are sufficient to support mortgage payments, insurance, taxes and upkeep on a home—the option of buying is  the wise choice in many, but not all, cases.  There are at least three cases when renting makes better sense.


First, if you are sure you will be moving within two to three years, the combined costs of buying, selling, and maintaining a home could offset any monetary advantage of owning the home.  In addition, while selling a home is a hot market may be accomplished within sixty days, selling in a slow market could take a year.  If you had to move, would you be able to continue the financial obligations of the home as well as pay rent on a dwelling in your new location?


Second, if you aren’t comfortable that your income is reasonably secure for the foreseeable future, you shouldn’t obligate yourself  to a long-term mortgage.  If you are renting, you are still obligated to the lease, but it is unlikely to be for more than twelve months. 


Third,  owning a home or even a condo obligates the buyer to more than a monthly mortgage payment, taxes and insurance.  Home ownership obligates one to maintaining the residence in good condition. The fine print in your mortgage will clearly spell out your obligation to maintain the property, and letting the property run down would invariably diminish its value versus other similar homes that have been nicely maintained.


If you aren’t willing to accept the responsibilities of paying taxes and insurance and maintaining the property in good condition, you should probably continue to rent. There actually are several advantages to renting.  Monthly costs during the first  few years may be less for a renter, moving to a new location is simpler, and maintenance is the landlord’s responsibility.


The advantages to buying a home are numerous.  The first and largest advantage is financial.  If you choose to rent, your annual rent increases could be 4% or more every year for the next thirty years while a fixed rate mortgage would stay the same every month until paid off.  A renter starting at $1,000 per month would pay over $672,000 over thirty years to buy real estate for someone else--if rates only increase by 4% per year. At the end of thirty years, the renter would own nothing. 


A homeowner buying a $150,000 property with a fixed payment of $1,000 would  pay $360,000 over the thirty years and would then own a property--worth over $486,000  if the property appreciated at the same 4% per year.  Of course, there are other factors.  The property has to be maintained and insured, but the tax savings to be gained by writing off the interest on the mortgage may largely offset the costs of insurance and maintenance.  Careful analysis favors buying, and clearly, for most retirees, the largest financial asset they’ve accumulated is the equity in their home.  Having a mortgage is sort of like having a forced savings account, and, if a financial emergency arises, you can tap into your accumulated equity with a home equity loan.