Should you rent a property or buy a property? Here are the things you should think about when making that decision, courtesy of some great comments different Real Estate agents sent us (for each point, I’ve linked to the full comment):
- Consider your short-term plans over the next few years. If purchasing a property, you should expect to live there for at least 4 years. If your plans are still in the air, rent instead (link)
- Similarly, if you’re going through significant life changes (divorce/career change etc.), it may be better to hold off buying for a bit (link)
- Do not just consider the cost of the home — know what your maintenance costs are too (link)
- Realize that it’s not guaranteed that your property will increase in value if you buy (link)
- It may be best to continue to rent when the median price-to-income ratio is at an all-time high (i.e. property prices are very high compared to people’s incomes), as in that case there’s a good chance it’s a bubble market that’ll correct in the near future (link)
- It may be best to buy when the monthly mortgage payment would be cheaper than renting a comparable space (link)
- One point many people don’t consider is if there’s a possibility of them inheriting property in the near future. If you think a family member could hand you a property in the next ~5 years, it may be better to rent until then (link)
- Never buy to fix a short-term issue (link)
- If you’re thinking about buying in a new area, you’d better be sure you like your job there, the culture, and the community. You can rent first in a new area and see if you actually enjoy being there before buying (link)
- If you’re in a difficult relationship, reconsider purchasing a property with your partner — a mortgage can add a lot of stress, especially if you break up and have to decide what happens with your home (link)
- If your credit is bad, you may be best off continuing to rent and building up your credit before buying (link)
If you’ve considered all of the above and are still undecided what you should do, I recommend using an online rent vs buy calculator which will give you a better idea of exactly how the costs of renting vs buying will stack up. Good luck!
When you are trying to decide whether it's wiser to buy or rent right now, there are a few things that you can do to improve your perspective and come to the right decision.
First and foremost, consider your short-term plans. That means you need to think about the next four to five years in your life. Are you confident that you'll stay at that property over the next few years? When you purchase a home, you should expect to live there for at least four years before upgrading and moving to a new home. If your near-future plans are still in the air, then renting is probably the better way to go.
As you make your decision, you should also consider where you are currently at in your life. Are you currently undergoing significant life changes like a divorce or a career change? How might your life change in the immediate future and how might those changes impact your financial stability? If you're going through major life changes, it may be wiser to avoid making a larger purchase for the time being.
Even if you can afford the home of your dreams, you need to keep in mind various home maintenance costs. When you're renting, you never have to worry about maintenance or repairs as your landlord will handle those issues for you. When you're a property owner, all of those maintenance tasks and their associated costs fall to you. Remember to factor in these costs when you evaluate your home buying decision.
It is also worth noting that while houses generally see increases in value over time, it's not always a guarantee. Property is an investment and you may want to see your investment increase over time, but it might not actually gain much value. For instance, let's say that the rate of inflation is roughly 3% and your home appreciates in value by 1%. In this scenario, you'd actually lose money on this investment in a home. That piece of property could actually be a unwise investment, so remember to think carefully about the location of your home and how it might change in value over time.
--Grant Muller, Grant Muller Group
Here are some examples that aren't discussed often:
Under what circumstances should one continue to rent
When the median price-to-income ratio is at an all-time high. While some real estate markets are more speculative than others, all markets are ultimately driven by fundamentals such as the pool of available buyers and renters. Someone eventually needs to live in these homes, and their purchasing power is capped by their income. When the median price of homes in an area significantly outstrips and becomes disconnected from median incomes, there's a good chance it's a bubble market and there's a significant risk of a correction in the near future.
If you live in a high-priced market where appreciation has flatlined. Many homeowners and investors are willing to bet on juicy appreciation returns at the expense of being significantly cashflow negative each month. This definitely works in a booming real estate market. It does not work when the market caps out or is in a downturn.
And when should someone take the plunge to buy instead?
When you live in a lower-cost market where a monthly mortgage would be cheaper than renting a comparable space. The down payment is much easier to save for compared to an expensive city, and you can permanently lower your living expenses while protecting yourself from future rent increases.
If you plan on house hacking. If you live a lower-cost market and buy a home with a few extra bedrooms you won't be using, you can rent them out to significantly reduce or even eliminate your monthly mortgage.
--Caleb Liu, House Simply Sold
Renting is very important for people looking for flexibility and convenience. If you're not planning on staying in the same spot for a long period of time - due to work, or other personal reasons - then renting is the best decision. When you rent, it's easy to pack up and leave if you so desire or need to. Also, there are fewer responsibilities and costs, the most important ones being associated with maintenance. Renting is also a great option for people who seek live-work-play environments, as many modern apartments are located in walkable areas, close to business centers and urban cores, and offer an array of amenities that are hard to meet when you own your place: swimming pools, state-of-the-art fitness centers, virtual offices, community events, kids' playgrounds, and more.
Still, if you have a stable job and you consider starting a family, perhaps then would be a good time to think about investing in a property. However, it would be best if you already had a certain amount of money invested in a different market, in order to generate additional income and reduce the cost of the mortgage, maintenance, repairs, taxes, and more which are associated with home-ownership.
--Mihaela Buzec, RENTCafe
Someone should continue to rent instead of buy when they might inherit a property in the near future. Purchasing a home and getting a mortgage is something very long-term (mortgages are usually 20+ years), and can take up a lot of time, money, and stress.
If you think a family member could hand over a property in the next 5 (even 10) years, then I would recommend continuing to rent before taking over this inherited property. You can save a ton of money and enjoy your final years of renting before becoming a homeowner, which is usually much more stressful.
--Chris Gold, Chris Buys Homes in St. Louis
1. Never buy based on a short-term problem. You want to buy based on a long-term need. For example, if you are looking to move outside of the city because of COVID, this is a short-term issue. Therefore, rent outside of the city. When the pandemic ends you will want to move back to city and won't want to own a home elsewhere. In this case, renting is a good solution to short-term need.
2. When moving to a new market, decide that you like your job, the culture, and the community. Set your roots down first and rent, even if you can afford to buy. It takes a while to know the lay of the land and determine where you want to live. If you buy initially and then decided the move isn't working out, you own a home in a town you will be leaving. Think long-term when you buy and know all the information about the area. Do not buy on a short-term need.
3. Run the numbers. If you know you want to live in an area permanently compare rental and mortgage rates. Compare with today's recent numbers not numbers from one year. Rent is going up and mortgage rates are going down. It may make sense now to buy than rent. Since the market is always shifting use the latest data.
--Nick Ron, House Buyers of America
If you anticipate your work situation will change in the near or distant future, or the industry you work in might come crashing down, then you should continue to rent. You do not want to stay up at night contemplating the future as you sit in your expensive home. Renting gives you some security, even during a stressful period where work is uncertain.
If you purchase a home, then you will be more stressed about the unknown ahead of you if your work is not steady or you don’t make a large amount.
(2) If you are in a difficult relationship, then you should reconsider purchasing a property with that person. If you are constantly separating and getting back together, or things are quite turbulent, then you do not want to add the stresses of owning a home to this situation.
If you purchase a home with someone you’re in a rocky relationship with, then figuring out what happens with your home after a separation can make a difficult situation even tougher.
--John Kirshenboim, John Buys Bay Area Houses
If you're planning to stay in a particular area for some time, it generally pays off to buy instead of rent. Either speak with a lender or use an online mortgage calculator to determine the difference. Then consider the equity you get to keep by purchasing a home. Even if you decide to move, you'll generally gain financially in selling the home since home prices tend to increase. There are two scenarios where buying a primary residence might not be the best move. First, if your job or lifestyle tends to have you moving every 1-2 years, renting might be a better option (you likely wouldn't build up a lot of equity or see the home value increase substantially). Second, if your credit isn't great, you may be better off renting for a while, working on your credit so you're in a much better position to buy later. It can make a big difference in your mortgage options.
--Kim McCumber, homesinmyrtle.com
The kicker when to comes to renting vs buying a home is that you actually plan on staying in that home long enough. I always advise my clients when they are searching MLS for homes, that they actually plan on staying in that home for at least 3 years or 5 years, and even that is cutting it close. It will be a safer bet for appreciation and being able to sell your home with enough equity to move up in the house when you buy the next one.
--Ryan Rodenbeck, Spyglass Realty