Should I Rent or Buy a House?
It’s been said by critics of the housing market that houses are treated like a necessity, but priced like a luxury. While housing prices depend on a lot of things, especially where you live, it will probably be the biggest purchase of your life. Since getting into a house at all is such a huge deal, is it better to rent or buy? The short answer is; it depends. Let’s take a look at the pros and cons of renting and buying and which option is right for you.
Should I rent?
Renting a house can be very tempting when you find one that you can rent for as much as a nice apartment. You can live in a house without anyone else in the building other than you family or your roommates and you don’t have to make a thirty-year commitment paying for it! You can have a garage, a lawn, curb appeal, and all of the other advantages that houses offer over apartments and condos. You can have parties without worrying about being too loud! Sounds pretty sweet, right? So why would anyone not do this?
The disadvantages of renting a house are shared with the disadvantages of renting any living space. You pay your rent every month to your landlord and you don’t have much to show for it. You’re just helping the owner of the place pay it off and maintain it. The national average for a monthly rent payment in the US is right around $1,000/month. When you think about it, that’s kind of a lot just to borrow a place to live. Depending on the house and the landlord, you may also have to pay for the place in elbow grease. When you rent an apartment or condo, the maintenance and groundskeeping is almost always done for you. If you’re renting a house, mowing the lawn and – heaven forbid – snow removal is your problem.
Despite the lack of equity you receive when you rent, I’m generally a fan of renting. I’ve rented several places in my life and I love how easy it is to move in and out. The paperwork involved with a rental lease looks like a coloring book compared to the marathon of paperwork, pre-approvals, and approvals you need to endure when buying a house. When you decide you want or need to move somewhere else, just wait for your lease to be up, pack your stuff, leave, and you don’t owe anybody anything. Moving out of a house with your name on it is quite a lot more complicated.
Renting is a good idea for the following people:
- Single people with no kids – Frankly, I don’t understand why single people with no kids buy houses. Unless you have a pretty clear, realistic path to having a family in the near future or you have a career that’s definitely going to keep you in the same place for a very long time, just rent a place until you know you’re about to settle down.
- People who move often – Whether it’s for work, for family, or for fun, if you move around a lot and plan on continuing to do so, just rent. The mortgage process is not worth the headache if you’re going to do it every couple years. Save yourself the hassle and just fill out the lease application, move in, and move out.
- People with bad credit or no credit – If your credit history is short or ugly, you’re going to have a hard time getting a mortgage. Even if you do get one, it probably won’t be a good one with a good rate. Check out how you can improve your credit score here.
Should I buy?
Buying a house has always been part of the ubiquitous American dream. It solidifies your place in the world in more ways than one. It’s where you are physically, geographically, financially, and family-wise. Owning a house can give you a massive sense of pride that your entire working life so far is paying off in a big way. When you own a house, you can do whatever you want with it. Your furniture, appliances, siding, doors, roof, floors, and everything is all yours. Paint an elephant on your bedroom wall if you want. It’s your house!
Aside from owning a house generally being awesome, the financial advantages over renting are significant. When you make a house payment, you’re paying for your house and working towards total ownership. When you rent, you will never own the building you’re in, you’re just paying to live there. When you buy, you’re building that mysterious thing we call “equity”. Equity is basically how much you own something. If your house is worth $200,000 and you owe $50,000, then your equity in the house is $150,000. When renting a house, your equity will always be zero.
The buying and selling process for houses is as much of a pain as everyone says it is. No matter how good your bank or your realtor are, it’s always going to be a headache. However, it’s a temporary headache and something you won’t have to deal with your entire home ownership. It’s just something to keep in mind when considering buying a house. The fact that a house takes fifteen or thirty years to pay for is enough to scare some people away. Whether or not that’s a financial commitment you’re ready and/or willing to make is entirely up to you.
Buying a house is a good route for the following people;
- Families – I had a wife and one-year-old daughter when I bought my first house. Before that, we rented a few different apartments which were perfectly sufficient until they weren’t. Eventually we simply ran out of space and we needed a house. We bought because we have every intention of staying in this general area of the world for the rest of our lives barring any major, unexpected life changes. We did a lot of homework before we even started working with any banks or realtors to make sure our credit was good enough and that we could realistically afford to buy a house.
- People with permanent careers – If you scored a really good job with a strong looking future and you have the income and the credit to own a house, go for it! You don’t need a family to decide to settle down, sometimes a career is good enough to keep you in one place for life.
- Investors – When I say investors I mean actual investors. Some people who know nothing about investing say they buy a house as an “investment”, but this is riskier than it sounds. When you buy a house, you’re buying a place to live, not a stock or bond. Unless you’re a real estate professional or a true expert on the housing market, don’t buy a house purely as an investment. If you know what you’re doing, however, there’s always money to be made one way or another buying and selling houses.
Figure out what you need, figure out what you want, and figure out whether renting or buying makes more sense for you.