To Rent or Buy, That is the Question

100 Real Estate and Relocation Tips in 100 Days (Day 24)

For a consumer, the first consideration in attempting to answer that question is financial.In order to buy real property, a consumer must have cash or the appropriate combination of income and credit needed to qualify for a mortgage.More about that later.

The second consideration is time.The consumer has to honestly answer the question “how long will I live here”?If it is less than 2 years, buying is a most likely a bad idea, because as a home owner, the consumer cannot amortize the costs of selling the home in less than two years in a normal market.As of this writing, although the real estate market is far from normal in most cities, normal is an annual appreciation rate of 3% to 5%.

The third consideration is why? Why do you need a place to live?If you are still hanging out at the parent’s homestead, you do not have to worry about the why.The average consumer’s first experience with renting is the “separate from the parent’s moment”, whether it is the journey to college or the need for independence.Steady employment, marriage, children and wealth begin to answer the question of why, usually because the average person needs a place to build a family and store the stuff we all buy.But renting still may be a good option, based on #2 above.

The fourth consideration is what? What do you really need?Renting may be fine for your lifestyle.If you spend half of your time climbing the Himalayas, then renting 6 months out of every year may be a good choice. Owning a home is a big part of the American dream, but it does come with responsibilities.Such as paying the mortgage, mowing the lawn, replacing the roof, painting the walls, and insuring against loss.In short, being a responsible citizen.

There are many benefits of home ownership such as building equity for the future (not next year, the future) providing a safe and familiar haven for yourself and your family, becoming part of a community, and income tax benefits.Oh, and yes, the really big benefit of the self satisfaction of owning your own walls and roof.

During the run-up of housing prices in the middle of the first decade of the new millennium, many people began to believe the owning a home was a way to make a quick buck.As we know now, that was a foolish notion.Although a few people won big, many more lost, essentially buying homes as if they were options in the stock market.Fast appreciation is not why anyone should buy real property.

So, let’s go back to the first part of this post, the ability to qualify for a mortgage.Just because you can does not mean you should, and you should not necessarily buy the most you can qualify for.Although qualification standards have become much stricter since the “easy money” days of 2005, it is still best to be a bit conservative.And remember, your decision to borrow should not be based on the interest rate.It is a whole lot more about understanding what you are committing to, and giving sober consideration to the possible downsides.

If, after you have given thought to what is written here, you still want to buy a home, by all means do so.Employ a Realtor that is contractually obligated and morally committed to work in your best interest, take the time to understand the market and the process, and perform due diligence on all aspects of the process, from selecting your Realtor, selecting a mortgage professional and applying for a mortgage, to properly inspecting any property you many want to buy.

It’s not really that difficult, but you have to be attentive and responsible.