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Buy vs Rent Home | The Rent vs Buy Decision

May 08, 2020

Buy vs Rent?

A number of homeowners are beginning to review the buy vs rent decision. Has the Corona Virus has changed the market and how many renters will decide to buy instead of rent?

Anytime the status quo is disturbed, opportunity is presented, and renters will be ready to jump.

Renting is still more affordable, maybe more so now in 2020, yet what will renters be doing to position themselves for a home purchase? Buying could be painful if the buyer is able, as being house poor is a tough lifestyle.

What Could Tip the Scales for You?

Many renters desire to own their own home, build equity, and enjoy more security. Those are big incentives. Some may be thinking about buying a home with the intent to rent out a portion of it. A few want to escape densely populated areas or buildings during the pandemic.

If mortgage rates hit a certain point, would more renters qualify and jump at the opportunity? Or does a renter need most of the signals to turn green?  It’s a tough decision.

The rental housing market is changing and landlords face a heightened challenge to hang onto renters. Renters are searching for solutions to their discomfort.

Google Trends is showing a moderate rise in those searching for home to rent or in apartment rentals.  Interest in buying homes is returning with a roar.

The Rental Market Will Return

The dream of having one’s own home, building equity, and enjoying stability is alluring. Yet a number of factors can make it a painful and risky option. Job insecurity, lack of listings, high down payment, high home prices, and stringent mortgage qualifications will make buying difficult, even for those wanting to rent out the basement.

As the Corona Virus threat eases, and employment rises, it will support both apartment rentals and home buying.

What’s Up for Home Buyers in 2020

  • long term fixed mortgage rates are falling further
  • home prices are stable
  • listings are falling to record lows
  • home prices are still outrageously high
  • rent prices are aren’t going down
  • economy is in tatters and may not recover this year
  • wage demands could fall considerably
  • employment rates are at historic levels
  • more new construction units becoming available but not enough to satisfy demand
  • more people have saved the down payment

When the Economy Comes Back

Home Price Growth

Graphic Courtesy of

Take this example below, for a small 2 bedroom home in San Francisco, San Jose, Toronto, Seattle, Vancouver, or San Diego:

Rental Investment Calculation

Price: $600,000
Mortgage: $500,000
Down payment: $100,000
Mortgage Rate Rising: 3.5%
Mortgage Payment: $3,028
Tax Write offs?  Very according state or province

Equity For Owners after 25 Years: $900,000, plus tax benefits + rental income + collateral for further property investing.

Equity for Renters: $432,000 spent for zero equity after 25 years.

Over the long term, buying easily wins if the buyer is solidly employed, withstands recessions, and rents out a portion of their home to create revenue, while enjoying further tax breaks. Buying to rent is a clear winner.

Buying rental property for growing income create even greater value. In fact, this is how most millionaires make their fortune. Choose the best cities for buying a rental property and you’re on track.

Lifestyle Renters are a Big Target Market

For the non financial aspects, renting may offer better results.  Those who need to be mobile for work, or who can’t really afford an expensive home, will be better off renting.

Many of the new rental buildings offer extensive services and lifestyle benefits. Retiring Baby boomers are renting in the Chicago rental market, Miami market, Phoenix market and Las Vegas market to savor lifestyle benefits.

Working Millennials, after making their rent vs buy calculations are seeing the benefits of co-living and apartments in key neighborhoods in these cities. For California, the prospects for buying are unfortunately slim.

Whether for retirement lifestyle benefits or career benefits, many multifamily developments are catering to these groups. Read more about the new developments in Chicago and Denver.

If you’re one of the many who are migrating to a new city, and have limited down payment funds, Austin, Oakland, Denver, Honolulu, Tampa, Miami, Dallas, or Charlotte, might offer better rental markets.

The US is a Renter Nation

The rental property market 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 house can you can afford, or can you really afford it all? — purchase and rent 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 if you should rent out a portion of your house. This is a smart opportunity.

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.

Graphic courtesy of NYtimes. Rent Vs Buy Calculator.

Rent vs Buy Cautionary Points:

  1. Don’t buy because you think it’s an investment, unless you plan to rent it out.
  2. Don’t buy because that’s what your friends are doing.
  3. 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.
  4. 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.
  5. 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. Most renters will choose to continue to rent an apartment this year. Buying has its benefits when interest rates are so low.  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.

Please read our new State of Property Management report, and learn more about what property managers are doing to improve their businesses.

Learn more about the current state of the rental market.

Rent Apartment | Software for Property Management | Virtual Property ManagementBest Cities to Buy Rental Property | Apps for Landlords | Property Management App |  Careers in Property Management |  Software for Property Managers | Software for Apartment Landlords |  What is Property Management? | Simple Landlord Software

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