Many renters think about buying a house, a place to call their own. They save a “nest egg” hoping to buy the home of their dreams. But, does buying a home make sense from a financial perspective? Is it a sound financial investment? Can renting help you to acquire wealth? These are some questions that “weigh” on peoples minds when it comes to considering purchasing a home.
According to an article by Jack Hough from SmartMoney.com “Rent is the cost of owning shares with money you would otherwise spend on a house. Houses have ownership costs, too: taxes, insurance and maintenance. Rent costs about 5% of house prices each year if we apply the price/rent ratio of 19. House incidentals often cost around 2%. If you have $300,000 and a choice between spending it on a house or shares, you’ll pay $6,000 a year in incidentals if you buy the house or about $15,000 a year ($1,250 a month) in rent if you buy the shares. But the shares will return $21,000 a year after inflation while the house will return zero. (My numbers work out even better than these. I pay a smidgen less than $1,250 a month for rent, while house prices in my neighborhood are far higher than $300,000.”)
Renting does not have as much responsibility as buying a home does. When you rent, it’s the property management’s job to fix repairs and maintain the property’s landscape. Renting gives you lease flexibility and a opportunity to check out different areas of the city. Once you a buy a home and decide you do not like the area, then you must put the home up for sale and pray to God that it sells straight-away!
Buying vs. Renting Links
- New Buyer.com. “Learn the tradeoffs, potential money savings and which option makes sense.”
- Ms. Money. A great site for financial planning.
- ABC News. Find out the pros and cons of renting and buying.
The bottom line is only you can decide if renting or buying is the best option. Do you want the flexibility of a lease or the commitment of a home? What is your financial situation? Ask yourself these questions before signing your name on the bottom line of either a lease or mortgage loan.
If you desire to make more money or spend a little more, renting may make sense for you. Many financial calculators are available online and can help you decide if renting or buying is the right move. Start crunching the numbers and plan for your future today!