Imagine you’re at a friend’s barbeque and everyone’s standing around talking about how much money they made from buying their homes 5 years ago. It’s common to feel pressure to buy a house. Everyone talks about how much their home has appreciated, renting is perceived to be the equivalent of throwing money away, and mortgage companies advertise insanely low rates and no money down mortgages.
But there are a lot of darned good reasons to rent. How would you feel being the guy who bought yesterday and is already losing money? Given the rising values and expense of buying, there’s a good chance renting would be cheaper than buying. Here are a few questions to ask yourself before you jump on the home ownership bandwagon.
Do you live in a housing bubble city?
A housing bubble city is when the value of selling houses increases until it hits the limits of the bubble causing the bubble to burst. At ApartmentRatings.com you can find out whether you live in a housing bubble city by locating the city and its associated PMI score. The PMI is the likelihood of house values to drop within 2 years of purchase. For example, if you are planning to buy a home in Boston, MA, with a PMI score of 553, this implies that there is a 55% chance that the home you buy today will decline in value within 2 years. The first two numbers of the score, in this case 55, is the percentage chance that the value of your home will decrease. If you can wait two years before you buy a home in Boston, MA, it’s more likely that you can preserve the value of your home.
Planning on living short-term?
Whether you are in town short-term for a job or just have a temporary need for more space, it would be better to rent than to buy. With the current market conditions favoring renters over buyers/sellers, you have a greater likelihood to lose the value of a short term real estate investment. If you equalize renting and burning money, don’t buy a home to turn around and sell it.
Rent a better home cheaper than your place now
Is your mortgage keeping you up at night working those extra shifts? Get a good night’s rest and rent. In most cities, your monthly cost of renting is cheaper than a standard 30 year mortgage. Owning a home can also tie up funds that could otherwise be used to invest in safer ventures than real estate including mutual funds and savings accounts.
Hate fixing every little problem and the lawn mower?
Whether it is your broken heater or broken water pipe, no one wants to have the worry of fixing the problem themselves if someone else will fix it as part of an agreement. If you like to spend your time of leisure fixing problems, apartment life is not for you. For everyone outside of that group, renting is the life for you. Renters don’t have to mow the yard or fix the broken heater. Your landlord is responsible for completing these home tasks. Even if you just don’t care for the responsibility or liability of owning your own home, renting is an easy solution.
To answer our question: To buy or to rent? Our experts say: rent if you 1) live in a housing bubble, 2) plan on staying in the area relatively short-term, 3) can rent a place either at the same level or better, at a lower cost, 4) hate fixing every little problem and maintaining the yard.