subject: Renting Vs. Buying Real Estate [print this page] Often potential home buyers are weighing the pros and cons of renting versus buying real estate. Unfortunately theres no formula or analysis that works for every individual, the decision whether to rent or buy must be made on a case by case basis because the process requires a very subjective weighing of pros and cons. As the housing market crash recently taught us, buying a home is not always the best option for every individual. Here is my best attempt to help with the decision of whether to buy or rent real estate.
Lets start with a few concrete laws:
1.If you are unsure about the stability of your job DO NOT BUY, renting is the only sensible option for you. If you are comfortable with your job stability then the home buying option is on the table.
2.There are calculators and formulas that can help analyze whether it makes more sense to buy or rent in a particular city based on current economic conditions. These are helpful but they dont factor in all of the subjective elements listed below. The numbers alone are not determinative.
Renting Real Estate Pros and Cons
PRO Renting requires a relatively small initial outlay of money. Most rentals require only first, last, and security deposit. This is dramatically less that buying a home and the security deposit is returned if the property is left in good condition at move out.
PRO Renting does not require a long term commitment. Most leases are for 12 months and then they either automatically renew or terminate.
PRO Renting allows you the opportunity to familiarize yourself with one or multiple neighborhoods before making a long term commitment to one.
PRO Economic and housing markets dont really affect renters. Rents may go up slightly or down slightly but things like declining home values, under water mortgages and shadow inventory arent important to renters.
PRO Renters dont have to allocate money for annual repairs.
PRO- Renting a home is a quick process that typically takes 2-3 weeks total.
PRO Renters dont pay real estate taxes or worry about real estate tax hikes
CON Renters have limited control over the property and the condition of the property they live in.
CON Renters dont build any equity in a home. The entire monthly payment goes to the landlord.
CON Renting is not a long term solution for most individuals.
CON There are no tax deduction benefits for renters
Buying Real Estate Pros and Cons
PRO Buying real estate affords the buyer 100% control over the property. If the owner is unhappy with the condition he or she can make alterations as desired.
PRO Interest rates are historically low.
PRO When you buy a home some portion of the monthly mortgage payment goes towards equity in the home.
PRO Buyers are entitled to significant tax deductions for mortgage interest and depreciation.
CON Buyers must allocate money for annual repairs
CON Buying a home is a long process compared to renting. The average home purchase takes 30-60 days.
CON Buying requires a long term commitment. In most cases the buyer should plan on owning the property for 5 years or longer.
CON Buyers pay real estate taxes and face risk of annual increases
Its easy to understand the difficulty clients encounter when deciding whether to rent or buy real estate. At the end of the day theres really no right or wrong answer, only what makes sense for an individual with a specific set of circumstances.
