Deciding Whether to Buy or Rent? Ask an Expert
It’s the question that virtually everyone will face at some point. Is it better to rent or buy a property? The question may sound like a simple one, but answering it involves bringing into play many factors and will depend not just on the equity you have available but your plans for the future and lifestyle preferences.
Why it’s a Good Idea to Buy a Property
Buying a property may be intensive in terms of up-front equity, and you’ll be required to pay ongoing costs, including those associated with maintenance, but it’s an effective way to build wealth and access relevant tax breaks. In the long term, property rarely loses its value, even if the markets take a short-term dip.
And talking of maintenance, when you own your own property, you’ve got much more freedom to undertake decorative work and renovations if you want to.
And the Downside of Buying Property
The high initial costs involved mean that this option may not be accessible to all. It’s also important to be aware that rising property prices aren’t guaranteed. There is always the chance that markets take a nose dive, and if you aren’t able to weather what – hopefully – turns out to be a temporary shift, you could find yourself in negative equity. And don’t forget to factor the HOA fees into your calculations when you’re figuring out just what you can afford.
You’ll need to factor maintenance costs into your budgeting plans, too. Experts recommend that homebuyers should earmark around 2-3% of the property’s value to cover the ongoing expenses associated with maintenance and upkeep.
Reasons to Opt for Renting
While renting doesn’t offer the opportunity to accumulate wealth via a property, the lower initial costs and the fact that landlords are usually responsible for covering all maintenance costs make this an attractive proposition. Plus, renters may get their deposit returned if the property is left in good condition and have much more flexibility to move and relocate if they wish to.
Things to Consider When Renting
When weighing up your choices, be really clear on all the expenses that come with each option. For example, say you’re considering renting in Arizona. It’s a good idea to find out whether, as a tenant, you need to have renters insurance in Arizona and what these premiums are likely to be. And if you have pets? Many landlords that accept furry friends only do so if you’re happy to pay an additional amount of rent a month to cover wear-and-tear caused.
Location, Location, Location
As with so much in the world of property, it really is all about the location. There are major differences in terms of both purchase and rental prices across the US. In some states, the monthly cost of buying a starter home is actually less than that associated with buying the same property. For example, in Austin, Texas, last year, the monthly costs associated with buying a property were around 42% higher compared to rental costs.
On the other hand, swinging over to Birmingham, Alabama, buyers were, on average, better off than renters at the beginning of 2022. Here, the monthly costs associated with buying a home were around 44% cheaper than those of renting the same property.
This demonstrates that it’s vital to take a close look at the stats for the location you’re considering buying or renting in as part of assessing your financial fitness and the affordability of a property.
How Long Are You Planning to Live There?
When weighing up whether to rent or buy, give careful consideration to how long you’re planning on living there. If you’re likely to only be staying for three years or less, renting could be the wisest option. Otherwise, you’ll be faced with the hefty costs associated with buying and selling again, such as those linked to inspections, appraisals, and realtors’ commissions. This could wipe out any monthly savings you’ve made by purchasing – rather than renting – in the first place. Moving is not only a hassle convenience-wise, it’s expensive, too.
The answer to the question ‘Is it best to rent or buy?’ is likely to be different at different stages of your life. The important thing to remember is that it’s a question that can be revisited. You may not be in a position to buy a property now, but with a financial strategy in place, you could be in five years. Renting now doesn’t commit you to renting forever.
Assess your current situation carefully, and think about the best option for your personal circumstances: buying may seem like the Holy Grail, but this course may or may not be right for you at the moment. Making your decision based on your goals, your lifestyle, and your plans for the future will provide the correct answer you’re seeking.