Last week the Wall Street Journal ran an article where readers weighed in on the question: Is Now the Time to Buy Your First House? Actually, the question of renting or buying a house is a good question for all ages to consider.
Historically, for most people, the answer has been pretty simple. “Don’t waste money on renting- buy a house as soon as you can scrape together the down payment.” A house was more than a home. It was typically one’s largest investment and the leveraged appreciation over time was fantastic.
Everything has changed in the last five to six years. The decision today is not so easy.
Here are some of the reasons to buy a house:
- Own your permanent dream home for years to come
- Get a tax break for the interest and real estate taxes paid
- Build equity with your principal payments
- Hopefully obtain long-term appreciation
Here are some of the reasons to rent:
- Payments are fixed with the monthly cost often lower than buying
- No repairs, grass cutting or painting to do and/or pay for
- Opportunity to invest funds elsewhere; spreading your investment risk
- More flexibility to move quickly for business or personal reasons
- No closing costs during buying or selling
There are free, online rent-or-buy calculators available. One is www.nytimes.com/interactive/business/buy-rent-calculator.html. However, please be aware that there are major estimates that are required, including annual maintenance and appreciation. Even so, the site can help people focus on some key factors. As a generalization, I think it is fair to say in today’s market that renting may be better than buying for those people who might need or want to move within 3-5 years. Those who plan to stay in one spot for a longer time will likely do better to buy.
Of course, housing decisions are one of the major pieces of a complete financial plan. Every situation is different. What makes it even tougher is that the decision to buy or rent a house is typically three decisions all rolled into one; a lifestyle decision, an investment decision, and a risk management decision. Fun stuff. We love working through these decisions with our clients, of all ages.