For anyone who has moved out of their parents basement’s already, paying for room-and-board for yourself is an unignorable part of being an adult. A few lucky individuals get to stay under the cash saving umbrella of their parents for longer, but the rest of us are out in the real world to fend for ourselves. A new concept to those moving out and beginning their journey as real world tax paying adults– paying monthly fees to stay in their new housing.
Whether it be a condo, a townhouse, or even an honest-to-goodness standalone house, the monthly payments are standard issue. With the payments being as high as they are, the unignorable question remains: what am I really paying for? Are you paying just for short term and temporary housing, or do you plan to remain here for the long haul? The answering of that question brings us to the point of today’s post: should I buy my own place, or just continue paying monthly rent?
It’s about the long-haul.
The bottom line is that it really is about longevity. How long are you planning on staying in the location that you are in? This question is pivotal in your decision on whether or not you should look into paying for your place on a monthly rental capacity or paying to purchase through something like a mortgage. Also, why put down the small mountain of cash to that is a down payment when you can keep your monthly payments the same while you rent?
Why do we rent?
The most common reason for renting is that you don’t plan to be in that one particular housing set up for too long. With rent payment options stretching from week to week, and leases that can box you in for up to several years, it definitely varies. We rent, because we enjoy the option to eventually pick up and leave.
The other option we rent, is to get a preview, or test drive of the place. With some apartments or townhouses or even just plain houses, you can rent for a while and if you like it, you can make an offer and put the money down to buy it up for yourself (considering you have paid enough in rent over a pre-determined amount of time). By being a renter of an available property long enough, you gain the ability to just put the money down for the rest and eventually claim it as yours.
If the time you spent in the residence was better than you thought, and the place offers enough space to fit your future needs, then the option to switch from rent to putting money down to purchase the place can be an ideal scenario. Check to see if the property you are renting or hope to rent is available for that option before you start renting if you think it may have the potential to be something you would like to eventually buy up.
Of course, not every scenario plays out the same, and sometimes the day your lease expires can’t come soon enough. Horrible neighbors, a noisy street that you didn’t notice before you moved in, or a traffic heavy helicopter fly zone overhead could all be possible reasons that can ruin a property for you. In those times, not buying but simply renting is the way to go. Why? Because you can leave.
Why do we buy?
A place like a house or a condo or townhouse are options that are likely spots to buy up, or at least consider purchasing. Apartments and small single spaces of the like are best left for renting due to their lack of space and adaptability to a changing life style.
If you want to have a family, or even just want to take on a roommate, the amount of space you have available is usually next to zilch in a little apartment, which means that attempting to buy a single bedroom or studio apartment is just a bad idea for the long run. If the apartment in question is larger like that of a loft or a penthouse, then maybe you could consider making an offer to buy up the spot. Even better if you want to buy the entire apartment complex and rent the spaces out. Other than those options, a single apartment is probably best to be left out of the running when it comes to putting down cash do buy it outright.
The real costs of owning a house.
Moving upwards from renting to buying a place isn’t a cake walk. Buying will more than likely place you into the financial upper hand instead of renting, but buying the place out doesn’t mean you will stop paying for the property and start saving a ton of money.
The best part about renting versus buying is that the facility is more than likely cared for by owners and services other than you. Repairs, gardening (if you’re lucky), utilities, property taxes… all expenses that are handled and conducted by the owners of the property. You still pay for these luxuries, but you just don’t feel like you do. The costs of maintenance and other such caretaking’s are included in your monthly rent checks.
If you buy the property, then these services will be taken on by you, including the paying of the people already contracted to take care of the residence and its utilities, and the fees included. You could take them off of the payroll and conduct the work yourself, but it would be easier to have the professionals do it. Home ownership means a lot of DIY, so be prepared to become an expert, of be prepared to pay for the experts to come to you.
In other words, you’re pretty much on your own when you buy the property.
Investing in a house.
Buying to own the property is certainly a way to bolster your investment portfolio, but it is not an asset that is a surefire way to make you quick cash. Buying a property and then renting it out is certainly an option, but with wear and tear, depreciation of the property, and property taxes, your “savings” from no longer paying rent are definitely dipped into.
Selling the house after you own it probably won’t leave you with that large of an investment differential either. All situations are different, but keep an eye on the market prices as they dip and rise for the best time to sell. If you intend to buy, flip, and sell, then you want to sell when it’s at its highest to get the most out of your investment.
A mortgage and the weight it causes.
To buy a house instead of rent, putting money down is how to get that process started. The more money you put down at the signing, the less you will have to worry about paying back as you work to pay back your mortgage. Just like any debt, the mortgage comes with interest, and the longer you take to pay it back, then the more time the cost of the house has to increase as you work towards your payments.
The number floating around the personal finance world is that you want to be able to pay 20% of the down payment up front with money you already have available. What that means is that if you had to fork over at least 20% of what is asked for today, you could totally make that happen. If you can do that, then do it! You’ll be glad you did because that means that you are more than likely actually able to afford the house in question, and won’t be bent over the knees of the banks come time to start mailing in checks for your mortgage payments.
It isn’t rocket science: the more money you put down on the house = the smaller the loan you take out to pay for the house = the smaller each of those payments will be. So save up as much as you can before you try to buy up a house, and you’ll be happier, wealthier, and less stressed out than you would be otherwise.
In the end, buying the property you are currently renting can be a great way to help you in the long run both save money (you’ll stop paying monthly rent eventually) and have a physical property with your name attached as the owner (you can eventually sell it if you desired). Buying the property means that you are putting all of that money to an actual end goal rather than blindly forking over cash that will have no return in the end.
Buying a place, however, is not always the best decision for everyone. Sometimes the money the property requires to keep maintained is just too much, and will outweigh the cash you save from stopping the rental payments. If the property is more of a money sucker than what you would pay per year in rent, it isn’t worth buying. Also, if you are renting a place in an area you do not intend to stay in and don’t intend to rent it out to other people once you are ready to move out, buying is an option worth passing on.
Many factors to consider, and no real blanket answer that can be cast over the decision of whether or not you should buy or continue renting. All residences are different, and no situation the same. Our most accurate diagnosis: rent for short term, and if you plan to squat in the same spot for a good long while, then maybe buying the lot may be the best option for you.