Should you buy an apartment or rent one? There are pros and cons for each selection. However, at certain times, one option is better than the other. Here are 4 things to think about before choosing whether to buy or rent!
Case #1 for Buying – A Form of Insurance Against Unstable Rent Prices
If both of these statements are true for you, then you should buy.
- You live in a city that you find desirable and plan to stay there.
- You do not expect your income to rise significantly over the coming decades.
Explanation: Future rent prices are unknown, either nationally or for any particular region. However, we do know that occasionally rents skyrocket. At different times over the past century, rents have exploded in New York, San Francisco, Los Angeles, Chicago and Detroit.
Case #2 for Buying – Forced Savings
You should buy if:
- You are always blowing your extra cash on vacations rather than putting it away in savings.
Explanation: Whether buying a home or renting, you can always save. The difference with buying is that you will be paying off your debt over time rather than paying money to a landlord. Once you pay off your mortgage, you will be left with an asset that you can sell or you can choose to live mortgage free during your retirement. The point is, if you don’t have the willpower to deposit money into a savings account regularly, then you should buy a home, thus forcing yourself to save.
Case #3 for Buying – Stable Investment
You should buy if:
- You want a stable investment that pays nearly as well as the stock market
Explanation: Returns on real estate investments have never matched those of the stock market, but after considering taxes, purchasing a primary residence is a sensible decision for most people. Your down payment could earn a fully taxable return as an investment, but give you a tax-free return – free rent – if used to buy a home. Plus, the first $250,000 in profits for a single person and the first $500,000 in profits for a married couple are tax-free.
Case #1 for Renting – Stable Maintenance Costs
You should rent if:
- You do not have the capital to pay for expensive maintenance on a house.
Explanation: Both buyers and renters pay for the maintenance costs of their homes, but buyers are subject to sudden and expensive costs, like an urgent roof repair, whereas landlords would have to pay for a similar expense up front before baking the cost of that maintenance into tenant rents. So be cautious if you are going to sink nearly all of your available cash into a down payment on a home. You don’t want to end up with a broken home you can’t afford to fix.