A big question for new families or those relocating to other cities, is whether it is better to rent or to own their own home. Some people like James Altucher, will say that you should never own. Others will say that you should almost always own. Just like all things in life, it depends.
First of all, dispense with the whole American dream idea. That is over. The 2008 recession saw more people moving into rentals and eschewing home ownership than ever. This article isn’t about living a dream, but about making a good choice. Where it used to be a hallmark of success to own a home, the new hallmark of success is just in making good choices.
Rents have been rising across the country since the recession. As new construction dried up, people lost homes and new families were created. The perfect storm came along and decided to take a bigger chunk out of people’s paychecks to cover the costs of rent, as the rental market suffered from low supply relative to demand.
Choices of renting or buying often swing with the markets for each. In 2007 it was better to sell and rent than to buy, as home prices had gone through the stratosphere (and you would have saved a huge loss on down the road). When home prices are high then chose to rent. Right now rents are high and should be pushing more and more people to buy.
Ask yourself, how long do you intend to be here? If the answer is uncertain as your job might require a move or other factors might come into play, rent. Should you plan on staying for a longer term, than seriously consider buying.
A home purchase doesn’t make sense if it will be for less than 6 or 7 years. The upfront costs of buying (like closing costs) need to be spread over time to make the purchase worthwhile. It is also worth knowing that home values typically don’t rise at a massive rate in normal market conditions. Your home will not make you rich.
If you’re in it for the long haul, buy. Especially right now with rent prices so high, the amount saved over a long period will be substantial. Saving money is just as good as making it.
If you work from home or have a small business, owning a home can be great. Not only do you get the tax write off for the mortgage interest, but you may also write off office space. Let’s face it, a dedicated office space in your home is nice and if you have it for business purposes, you can write off the square footage of that space.
Before even contemplating buying ask yourself if you have your other finances in order? Do not buy if you are carrying substantial debt and do not have money saved for emergencies. The last thing you need is to get into a home and find out it needs a new roof.
If you decide to buy, is it a home you can afford? Dreams of grandeur are pretty common with home shopping. Home shoppers will often find themselves making trade-offs in their heads about giving up date nights for a bigger back yard. If such trade-offs start coming into the equation, seriously rethink. A home payment should take no more than 30% of your monthly take home income. Anything over 40% - 50% is the DANGER ZONE. The goal is to own a house, not let it own you.
Renting can really be great for some people. If you are always on the go and don’t have the time or patience for repairs, landscaping, etc. The trade-off of giving up some savings for a worry free living arraignment can be a great thing. Home ownership takes commitment. Some people aren’t made for commitment to a home any more than the pick-up artist at the bar is made for a relationship commitment. If the last thing you want to worry about is replacing a hot water heater or you have no clue how a cordless drill works, renting is probably for you.
Keep throwing out the traditional measurement of success and the American Dream that home ownership conjures up and look at it from a practical level. It is for some and not for others. If you plan on staying put for a while, this could be a good time to consider locking in a low rate for a new home.
Lina Martinez is a zenruption contributor and has her B.S. in journalism. She often writes on personal finance and politics. Currently, she is weighing whether to purchase a home or not. She has no clue how to use a cordless drill.
Feature photo courtesy of Flickr, under Creative Commons Attribution-Noncommercial license