Should You Rent Or Buy?

I read yet another article today that stated “Well, if you ask a Realtor, then it’s always a good time to buy.” 

Not so with us.  It’s not always a good time to buy, and buying isn’t for everyone.  We’ll tell you that.

There are many things to consider before buying a home, rather than just “the home will appreciate” vs “why pay for someone else’s property.”

There are a number of good rent vs buy calculators (just Google it) on the internet that consider some (but not all) of the dizzying number of things to consider:

—What is the average appreciation of a home in your target market?
—What kind of down payment to do you have?
—What is your credit score?  (just a small glitch in your credit can cause a drop in your score and cost you thousands more over the life of a loan if you are unable to someday refinance).  You don’t want to end up with a predatory lender.  Work on repairing that credit score before applying for a loan.
—Will the mortgage interest and taxes allow you now itemize on your tax return?  If so, perhaps there are other items you’ll be able to now itemize, whereas previously you had to just take the standard deduction.
—What is the local rental market like?  It’s likely that over time, your rent will increase, while with a fixed-rate mortgage, your mortgage payments will stay the same – though your property taxes, insurance and maintenance costs could very likely increase.
—Are you “handy” or willing to learn how to be “handy?”  If you cannot perform minor (or major) repairs yourself, you will have to pay someone to do these things for you.
—How secure is your job?  Are you likely to be fired or laid off?  If it happens, how likely is it that you can find another job at comparable pay?  Is it likely you might have to relocate within the next 3-5 years?   If so, selling costs, could more than eat up any gains you may have made.
—Just because a lender gives you an amount that you can “afford” or qualify for, you need to decide for certain whether you really can or not.  Be sure to consider maintenance, property taxes, homeowners insurance and any homeowners insurance fees  in your monthly budget vs. gains you will have in potential appreciation, tax deductions, etc.  Don’t forget to include more longer-term items and make sure you’re able to start setting aside money in a fund for those things so they don’t cripple you when they occur:  some day your home will need a roof, or a paint job, or a water heater, or a furnace, or an air conditioner.
—After your acquisition costs (downpayment, loan and document fees, etc.), do you still have a rainy day fund?
—Do you generally manage your money well?

In some markets currently (and possibly for the forseeable future), it would make much better sense to rent than to buy.  For example:

In Austin, Texas, a $230,000 single-family house would rent for approximately $1,250 per month; in Irvine, California, a $587,000 single-family home would rent for $2,832, on average, per month. On those numbers, renting in Austin saves $94,800 over buying that same house over a 10-year period.

The present value of the benefits of owning that house in Austin is approximately $47,000 using these calculations. In Irvine, the renter saves a whopping $144,000 over a 10-year period over buying the same house; the present value of the benefit of ownership is about $142,000.

Fortunately, in Topeka, we have seen very few areas that have experienced price declines during this past recession, and even then, they are very minimal.  We are fortunate to have a boringly stable economy in Topeka – while we haven’t seen the high appreciation during the boom years, we haven’t seen the high depreciation during the recession.

If you can afford to purchase a home, and you do it in a practical and educated manner, buying a home in Topeka can make great economic sense and be one of the smartest moves you can make.  Home ownership builds wealth in two ways: through the forced savings of paying down a mortgage, and through appreciation — the rise in the homes value over time.

There is much to consider, and we can help you through that process – whether it’s professional representation in a purchase or fee-based consulting.  But if we think it may be best that you don’t purchase a home at the current time, we’ll be the first to tell you .

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