Buying a Home vs Renting
This year, hundreds of thousands of people will be reconsidering the matter of buying vs renting a home. What’s different in 2019? Intense bidding on homes has disappeared, but prices are fairly solid. Many current homeowners need family help to pay their mortgages.
Many have purchased, and the economy is excellent, but what lies ahead from 2020 to 2024? And which type of property should you buy? Single detached, townhouse, sky condo, duplex or apartment? What’s the outlook for buyers? Would you really save $400+ per month, or will all the fees and fixes put you in the poor house?
What’s Up for Home Buyers in 2019
- mortgage rates are rising slightly
- home prices have stagnated overall
- home prices are still very high and may fall in 2019
- rent prices are leveling off yet renters are paying high portions of income on rent
- economy is excellent for 2019, but what happens in 2020?
- wages are rising but is higher unemployment on the horizon?
- employment rates are at record levels
- more new construction units becoming available but not enough to satisfy demand
- more people have saved the $100,000+ needed for the downpayment
- it’s reported that relatives are helping 50% of homeowners pay their mortgages (bank of mom and dad)
So there’s lots to think about regarding buying vs renting. Most renters stick with a condo or apartment which offers more carefree convenience financially and in living. They could put it off a few more years until they have the resources to manage it more easily. Some say, don’t buy at all. Prices are too high.
The Dream of Owning a Home is Alive and Well
On one hand we visualize how exciting it would be to own our own home and how much wealth we’d enjoy in 40 years ahead. And then how amazing our retirement will be. And we might even buy a rental income property and add on even more retirement wealth.
And on the other hand, we think about the risk of buying at a high point in the real estate market along with the high costs of owning, and the risk of a crash. We could be house poor for an unbearably long time. Maybe we’re not ready? And if something goes wrong with the economy in the next 6 years, is losing the investment a likelihood?
Millennials are buying homes despite the prices and overhead. They’re ready to settle down and start a family. However, for a family or young person considering buying a house at today’s lofty prices, at an uncertain point in the economic cycle, this is a big risk. Big rewards and big risks for those who buy.
Buy Vs Rent Comparison
A big part of the analysis depends on your down payment, price of the house, interest rate trends, and mortgage restrictions. In a lower cost housing market such as Detroit, Philadelphia, or Tampa, buying might make much better sense than in a high rent market such as Honolulu, San Francisco, San Jose, San Diego, Los Angeles or New York.
Home Buying Renter
Down payment: $100,000
Mortgage Rate Rising: 4.1%
Mortgage Payment: $3,228
After 25 Years: $600,000 plus rental income? $2000 month
For Renters: Monthly Rent: $3000 plus zero equity after 25 years
Is the home and neighborhood good enough? Will purchasing leave the buyer with more money to spend each month?
The US is a Renter Nation
The rental property phenomenon is strong because investors are buying properties to rent out. Some call them speculators, but they can and do buy properties and those properties aren’t for sale. This is why there’s been such a boom in the property management business.
They get the income earnings benefit, capital gains later, along with tax benefits. That’s dried up housing availability and raised home prices.
It’s not an inviting scenario for hopeful home buyers with simple wishes. That’s lead to America becoming a renter nation.
Does Buying Really Deliver Value?
There are many with an unshakable belief that a home is also a retirement savings asset, while others suggest that you can’t eat a house when you’re 65. Many seniors today can’t sell because there’s nowhere to go. In Toronto, Vancouver, or in most cities in California, buying just doesn’t make sense.
Compare the Key Benefits of Buying vs Renting
- creates long term wealth accumulation
- tax advantages
- rental investment income possibility
- greater feeling of security and stability
- interest rates are low currently
- it may be cheaper to buy than pay high monthly rental rates
- if you divorce your spouse, it could create severe losses
- there is a housing crisis and big demand for any home or apartment should push prices higher
- real estate as an asset has performed better than any other asset type in the last 30 years (if you consider tax write-offs, price appreciation, and rental income, it outperforms by far)
The Benefits of Renting a Home or Apartment
- no downpayment stress
- no worry about mortgage commitments
- no high cost of house and property maintenance
- no worry of buying a money pit
- no worry of mechanical breakdown
- freedom to travel and move
- many buildings and condo complexes have fitness centers and swimming pools
- no worry of real estate market collapse
- unemployment doesn’t mean you could lose your investment
However, we’re asking if buying a house right now in 2019 is wise or does renting a condo or apartment make more sense.
Major Considerations before deciding on buying or renting:
- whether this is the right time to buy for you personally and emotionally — do you really want to be tied down to a house and property with all the stress and responsibilities?
- will you be marrying and raising a family? — can you raise children well in a high rise condo or a downscale neighborhood where you can afford to buy?
- how much can you can afford, or can you really afford it all — prices are so high in cities such as San Francisco, New York, Miami, Dallas, Austin, San Antonio, Denver, Seattle, San Jose and Los Angeles for instance, it may take all your income to pay for the cheapest unit.
- how high will mortgage rates will climb — can you pay your payments if they rise by 70%?
- how much other debt do you have? — do you have student loans and credit card debt to add to your mortgage payments?
- alternative investments — what else could you invest in right now with your down payment (bitcoin, startups, gold, stocks)?
- should you buy to rent out yourself? — rents are rising fast with very low vacancy rates ensuring a positive cash flow
Buy vs Rent Cost Calculator
To get a better view of your buying vs rent decision, try out the rent vs buy calculator from the NY Times. This widget still requires your input on forecasting a few things, yet it might help clarify the pluses and minuses for you.
Here’s a few don’ts to ponder:
- Don’t buy because you think it’s an investment, unless you plan to rent it out.
- Don’t buy because that’s what your friends are doing.
- Don’t pay the going asking price because the seller thinks it’s worth that much. Consider why they’re so eager to sell right now.
- If you buy right now, you’re paying a speculation price. If you do buy, only buy at an affordable price for a home, condo or apartment.
- The only exception to this would be to buy an investment rental property. When your property earns big income from hungry renters with few rental options, it’s a good investment for the next 5 years. If you have to sell it, you’ll likely see a positive ROI.
Good luck with your buy vs rent decision. And if you’ve thought it through and are confident about your choice, feel good about what you’re doing. Being positive is a must for anyone.
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