Again we find ourselves facing another financial dilemma: should I rent or should I buy? And just like many other financial quandaries, we have seen the example of our parents and perhaps friends but have little true professional knowledge to base our decisions on. We get a lot of advice from those around us, which is VERY tempting to listen to, but should we? For me the answer is “Don’t ask a butcher how to bake a loaf of bread!” It’s a good idea to listen to everyone you meet in your life, but it’s an even better idea to consider who is giving the advice when you’re faced with a decision.
A meticulous knowledge on your personal situation, as well as his solid experience and work background are just some of the qualities you must look after a good adviser! Your circumstance after all, might be entirely different from that of the others. Usually, the most practical way to evaluate the pros and cons of buying or renting is through a financial standpoint. According to Russell Gray (co – author of the book “Equity Happens”), “Do the math!”
Given our current circumstances, I will not claim to know which will work for you since I do not have an idea of your particular situation. Nevertheless, I have listed some points below to help you find the best option and see the difference between buying and renting. For those who do renting, we can start by computing the monthly costs, which consist of rent in addition to fees, and other utilities for payment.
On the side of ownership, more items are combined together that would require a professional’s assistance. Included in the ownership costs (otherwise known as PITI) are the following: “principal” which pertains to the amount you must prepare toward your loan’s principal, “interest” or the amount paid towards your loan’s interest, “taxes” or the amount you must pay for property taxes, and “insurance” which pertains to both property and mortgage insurance. This makes the process a bit more daunting.
An easy way to see the difference between buying and renting is to compare their monthly monetary expenses. Aside from the PITI costs, owning a house comes with utility expenses and other maintenance costs such as lawn care, appliance, occasional new shingles, etc. that are usually not present in renting. With the latter, you shell out only the exact amount of money every month. Nonetheless, it is imperative to pay attention not just with the monthly operating cost but the long-term financial benefits as well.
If you are the type of person who favors long-standing gains over the immediate, then buying a house is for you.
Renting will perhaps save you some of the costs apparent to the other but after several years of paying, you still do not have a title to call your own. In addition, your monthly rental becomes higher as time goes by. On one hand, the cost we pay to home ownership remains constant through the years except for some expense that inflation affects (i.e. utilities, insurance, etc.). What’s more exciting here is the promise of equity from all the payments you made towards your owning a home!
There is a good chance your choice shifts according to your personal feelings and opinion. Simply put, making the best decision towards renting or owning a home involves your subjective feeling. What can be more fun than having a house you can call your own, and enjoying the independence in creating changes with it however you like it! On one hand, you might favor the side of renting if you will give emphasis on other concerns such as having no lawn to mow, or other maintenance issues.
The math is very important to look at, however, and often will put in perspective the subjective feelings you have. For example, maybe you won’t think not having to worry about replacing your refrigerator in a rented apartment is a big issue anymore when you see how much extra you are paying to rent instead of own. Or it could go the other way and maybe the benefit of choosing your own paint color in your owned home seems minor when considering the outrageous property taxes and lack of appreciating home values that come along with the area you want to live in. The numbers usually don’t lie and choosing the best option for your personal finances usually outweighs your subjective considerations.
Concisely, this article wants to present two major points: always consult a professional in weighing out your options and calculating your expenses; and look beyond the immediate gains of ownership or renting. The benefits from both sides will not be evident unless we set our eyes on the long range that will not be apparent on a monthly cost comparison. In a buyers market that we are in, ownership is favored over renting.