To buy or not to buy? That is the question.
Shakespeare’s well-known debate still applies to important decisions we make today, for example, whether to buy or rent a home. In the U.S., we’ve experienced 250 years of appreciating property values.
Based on this long trend, my position is that, in the long-run, it’s always better to own and I generally advise my clients to consider owning a minimum of one primary residence and one rental property.
However, renting can have important advantages. If you’re certain you’ll be living in the area for three years or less, and especially if you can lock into a long-term lease, renting might be a better option. Consider three reasons why:
- Peace of mind – While renting can be thought of as “throwing away your money,” it’s also true you can benefit from valuable intangibles, such as peace of mind and greater mobility. When the time comes to move, it’s as simple as calling your moving company! And in an average market, homes appreciate approximately 3% per year, so the first few years can be a break-even experience due to the costs of acquisition and selling.
- Less risk of variable and unanticipated costs – Renting allows you to predict in advance exactly what your costs will be over a period of time, with no variables to worry about. You won’t be affected by unexpected repair costs, increased property taxes and HOA fees, and other expenses associated with home ownership
- Greater opportunity to know the area before making a long-term purchase commitment – If you’re new to an area, making a purchase decision before living there can end up to be disappointing. Renting allows time to become more familiar with surrounding communities, neighborhoods, school systems and other services. In this situation, a one-year rental might be preferable.
Even after evaluating the points above, it still may be better to buy instead of rent IF you have an alternate exit strategy. I’m a strong proponent of property ownership as a vehicle for wealth creation. For most of us, our homes are our biggest investment.
If your strategy is to turn your home into an investment property, then I would recommend purchasing, even if you may be living in the area less than three years. When people get to retirement age, they often wish they had a second home to sell to help finance their retirement.