When we’re kids, we have an idealistic image of what adulthood will look like. We imagine we’ll grow up to own a beautiful house with a yard, white picket fence, and have two paid-for cars in the garage, one for ourselves and the other for our spouse.
If only life were that simple!
A record-high 36% of all households now rent instead of own their home.
Of course, it’s still possible to achieve homeownership, but the journey to get there is more difficult than ever before.
This raises multiple questions: Should I rent or should I buy? When is the right time to switch over to homeownership? Is renting really just throwing money away?
In this article, we’ll cover the budget-based factors to help you consider which options may be right for you. In addition to your budget, we’ll also discuss the lifestyle considerations that you should factor into your decision. So, let’s get started!
Conventional wisdom is that buying is better than renting because you are building equity in something you tangibly own.
However, this isn’t always the case.
According to Forbes, it can take 3-7 years to simply break even on your home purchase, depending on where you live.
[article post=”1″]With that being said, renting is likely better if:
There’s this misperception that renting is just “throwing money away.” For some people, however, renting is actually “paying” for flexibility that doesn’t come with homeownership.
Think about it: with renting, you can easily move to a new city, accept a job across the country, and even move to a new rental unit without worrying about a commitment to a property. You don’t have to worry about taking a loss or breaking even on your home purchase. Instead, you can simply pick up your belongings and move.
The biggest benefit of renting is flexibility.
Plus, it doesn’t hurt that renting is often much cheaper than homeownership. For example, if an appliance breaks or repairs are needed, your landlord or apartment manager will take care of the issues. Compare this to homeownership, where you are financially on the line for any repairs.
Homeowners also have to pay property taxes, which can increase substantially based on local policies or an increase in home value.
To recap, the benefits of renting can be summed up as:
Buying a home is a great goal to have, but it doesn’t mean that it’s a goal you need to accomplish immediately. First, focus on finishing school and getting settled into your degree. During this time, begin preparing and strategizing your budget for the future so that when it’s time to make the leap into homeownership, it’s as smooth as possible!
On the other hand, there are many instances when buying a home is a better option than renting.
You should evaluate both your financial preparedness as well as your lifestyle needs.
Financially, owning a home isn’t just about “how much mortgage can I afford?” There are other monetary factors including, but not limited to:
In other words, just because you can afford a mortgage payment, it doesn’t necessarily mean that you can afford a home. However, if you have a stable income and are able to handle these considerations, then it may make more financial sense for you to purchase a home.
But a house isn’t only a financial decision. It’s an emotional one, too.
[article post=”2″]Think about it: a house isn’t just a piece of property. It’s a home.
This is where you’ll live, spend time with your loved ones, and maybe even raise a family.
So it’s important to also consider your lifestyle. If you are at a point where you want to place down roots, then it definitely makes sense to buy a home. Consider the local community as well. Are the people next-door folks you’re comfortable being neighbors with? Are the local school systems right for your kids? Do your values align with the community’s values? If so, then it might be a good idea to buy where you are!
When it comes to lifestyle, the most important question you can ask yourself is: do I see my life changing dramatically any time in the near future?
If the answer is “no” and your income is very secure, then buying is likely better than renting. If your answer is “yes,” then renting is probably the better option.
When it comes to the question of whether or not it’s better to rent or buy a home, only you can answer that question.
Be sure that your decision is yours — and yours alone.
Don’t be swayed by what you think others expect you to do. Ignore the temptation to try to “keep up with the Joneses” or compare yourself to the progress some of your friends are making.
Instead, consider your unique financial situation as well as your current and projected lifestyle needs.
To help, here’s a brief recap of what we discussed above.
The pros of homeownership include:
The cons of homeownership include:
Though there is a perception that renting is “throwing money away,” that isn’t necessarily the truth. It’s all dependent on your current financial situation as well as your lifestyle.
The pros of renting include:
The cons of renting include:
Whether you decide to rent or buy a home, the most important thing you can do for your finances today is to have a strategic and intentional budget. To learn more about budgeting, feel free to read my previous budgeting posts here!
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