Examine your stage of life: buying a condo vs renting
An age-old question: should I rent or buy?
You’re established in your career, and don’t expect to move for a few years. And your last rent increase was sky-high. Perhaps it’s time to examine your stage of life and compare buying a condo vs renting.
- Most experts believe buying is right if you plan to keep the home at least five years
- Studies show homeowners amass substantially more wealth than renters
- Renting offers flexibility to take jobs in other parts of the country or escape obnoxious neighbors
It comes down to your resources and priorities. But condos are more like rentals than houses in that there is an association to take care of much of the maintenance and repair you’d otherwise have to do yourself.Verify your new rate (Jul 21st, 2018)
Examine your stage of life: should you keep renting?
Buying and renting each has their pros and cons. The option that’s best for you will depend on many factors. These include your goals, age, relationship status and financial means.
Compare and contrast your choices carefully. Ask questions. Do the math. And forecast events to come. You may find that you’re better off buying than renting after all.
Wendy Guess, instructor at the College of Business at Florida International University in Miami, says it’s smart to ask this question.
Can anyone afford to rent anymore?
“Take time to consider your goals and where you are in life. That’s one way to help determine whether you should rent or buy,” she says. “You need to weigh factors like the type of job you have. How long do you plan to be in the area? Do you want to raise a family? What’s your tolerance for risk? Can you qualify for the right type of loan?”
Also, think about where your money is best spent right now.
“Maybe you’re investing in your education. If so, it may be more important to focus on that over a home purchase until you’ve completed your education and have a career path,” says Guess.
Eric Harvey, a real estate instructor at the University of Indianapolis, says this decision should not be taken lightly.
“Your life stage should be examined carefully,” he says. “But you should also assess your ability to properly care for and maintain a home. Ownership requires investment of money, time and labor that isn’t required when renting.”
When it’s better to stay a renter
Daren Blomquist, senior vice president for ATTOM Data Solutions, says many folks are better off renting for now.
“Think you’ll move to a new location outside your local market in the next five years? Then you should probably continue renting,” says Blomquist. “This applies if you are early in a career or have a job situation that’s uncertain.”
Renting is better if you also prefer the leasing lifestyle, Blomquist adds. “This means you don’t have to worry about paying off a mortgage, home upkeep, or losing money if you have to sell quickly.”
“Renting is typically better for those who have limited time to repair and maintain a home. It’s also better for single parents,” says Harvey.
Maybe you’ve not saved up enough for a down payment. Or you have a lot of student debt. If so, renting is likely the better choice, Blomquist adds.
When it’s better to buy a home
On the other hand, buying is better than renting for many in the right stage of life.
“Renters who are pretty certain they’ll remain in a local market for at least the next five years should consider owning. Over that time, it’s likely your home will gain in value,” says Blomquist. “Plus, your mortgage payments will go toward building equity for you instead of your landlord.”
As a long-term investment, owning is one of the best ways to build wealth, he notes.
“And it provides the added benefit of giving you a place to live,” says Blomquist.
It’s also an investment you can add value to, Harvey says. “Your home can increase in value when you add a new bathroom or redo the kitchen.”
Home prices don’t always go up. But they typically increase over a long-term period. Expect home prices to rise 3.5 to 4 percent annually over the long term, Blomquist says.
New data show the average home seller enjoyed a 29.7 percent return on investment. That ’s compared to their home’s original purchase price. Also, a Florida Atlanta University index suggests that, nationally, buying has outweighed renting since 2010.
Other things to think about
Buying or renting isn’t meant to be an easy choice. To help you decide, Blomquist suggests these points:
- Rents tend to rise at a slower pace than home prices during a boom. “That’s because they’re often more directly tied to wage growth than home prices. The longer you remain a renter during a boom, the harder it will be to afford a home. You have to be extremely disciplined about saving or see above-average wage growth.”
- Home prices are more likely to fall faster during a downturn.
- The housing market is cyclical in nature. “There will likely be a future correction in the market. That will make buying more affordable. If you can’t buy now, be ready to pounce when that opportunity arises.”
- How much debt do you have? “If that’s a huge burden already, focus on paying it off before taking on more debt by buying a home.”
- How much of your income is already going toward rent? “Learn if it’s the same or more than you’d be paying monthly for a home. If so, the benefits of owning should tip the balance toward buying over renting.”
- How much of your income can you devote to housing? “The traditional rule of thumb is to spend no more than 28 percent of your gross income on housing. Will you be able to pay for other necessities? You will still need to eat and get to work.”
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