Wednesday, March 23, 2011

To Rent Or To Own?

Keep renting that apartment, or buy your own place? It's a question that seems to have many conflicting answers, and a question that I suspect is particularly common among newlywed couples first starting to build a life together.

My husband and I are at that stage in our married life. We're gearing up to start expanding our family soon, and our one-bedroom basement apartment just isn't going to be enough. Not too long ago, I blogged about how we briefly considered renting another place, and even went around looking at some apartments, before deciding that we'd rather save up for a place of our own.

But what exactly was the logic behind our decision? In this post, I'm going to look at the arguments for owning vs. renting, and the things we took into account when considering this important question about our future.

Advantages of Renting:

Growing up, my family -- and my dad especially -- were huge evangelists for owning. Why throw away money on rent, they would say, when you could be putting it into equity on your own place? I think it was taken for granted that as far as investments went, real estate was a sure thing -- or at least more sure than anything else you could put your money into.

Of course, all this was back in the years before the "mortgage bubble" burst -- back when real estate values reliably increased over the years. In today's economy, there's a lot more uncertainty.

Which brings me to one of the big advantages of renting: flexibility. If you're renting, and you lose a job or otherwise take a hit to your finances, you can move somewhere smaller and cheaper when your lease is up. But if you own your home and need to move, you generally have to sell it first -- and there's no guarantee that this will happen quickly or easily.

The other big advantage with renting has to do with responsibility. Assuming you have a competent landlord, life can be much easier -- because when something breaks, you have someone else to call. There's no need to navigate through dealing with plumbers or electricians or the like, and more importantly, you don't have to pay for it.

Advantages of Owning:

All that having been said, there are still some definite advantages to owning a home. Like the freedom to make pretty much any changes or improvements you want. If something about your floorplan, for instance, isn't working for you (and you have some spare cash to spend on renovation, of course) you can knock down a few walls and otherwise change it to your liking.

That sort of thing is highly unlikely to be okay with a landlord. And even if it was, why would you want to spend that kind of money fixing up -- and adding value to -- somebody else's property?

The other big advantage to owning has to do with the long-term investment aspect of it. I know this has lost some of its allure in recent years, what with the housing crash and all. And I've even heard finance experts assert that you'd be better off just renting, and investing the difference between your rent and what a mortgage payment would be, than you would be buying a home.

But every time I've heard such a claim, I've felt vaguely skeptical that this is actually the case. It just didn't seem like the numbers would work out that way in the long run. My suspicions are backed up by this interesting article on buying a home as an investment:

You have to compare buying to renting because you can't live for free. So the proper question is, "If I buy instead of rent, will I wind up with more net value?" In most cases the answer is an emphatic YES. You'll wind up with more net value by buying.

Even though buying is usually a better deal than renting, you'll still usually be "in the hole" by buying. That means over, say, 30 years, you'll spend more on your purchase than the house is ultimately worth. This is normal. If your house wound up being worth more than you put into it, that means you'd been living for free. Does anyone really expect to live for nothing? So you'll usually be a little "in the hole" by buying. But you'll usually be way more in the hole by renting. So buying a home is a way to cut your losses. You're still going to be out some by buying, because you have to pay for your housing, but you'll be out less by buying instead of renting.

Makes sense to me. The above quoted article is just a small part of an entire site on home buying that seems very informative, and that I'd recommend taking a look at if you're considering getting a place of your own.

Conclusion?

Since it seems like we'd like to "settle" somewhere, the added flexibility of being able to move every year or two if you rent doesn't carry much weight for us. And the convenience of having a landlord around to fix things just doesn't seem to outweigh having the freedom to modify, renovate, and otherwise personalize our living space.

So that's how we reached the decision that buying would be a better move for us. And last weekend actually marked the official start of our house hunt, so there will probably be future bloggings about our various misadventures on that front. Stay tuned!

1 comment:

  1. This is probably one of the most logical and well thought-out examinations of renting vs. owning that I've read lately. :)
    We choose to rent in the DC area so that we can have a small single family home near our offices. If we were to buy in a huge city like this we'd either have to buy something very far from the city, and do long commutes, or buy a small condo near our offices. Oh, and by renting we are able to spend less and get more...so that we can save up for the day we move to the country, and then buy a place.

    I thought that Ramit's info was useful when we were debating buying something (http://www.iwillteachyoutoberich.com/buying-a-house/). He offers an alternate look that was eye-opening.

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