Renting Versus Buying – How to Plan Your Future

For years there has been an ongoing debate regarding whether it is better to buy or rent a home. It seems that both sides have valid points – and both have benefitted at different times – depending on which way the market is moving.

Today, however, our economy is in an odd position. While many are still reeling from the massive “loss” of equity in their homes as compared to the values in the mid-2000s, there could still be something to be said about the benefits of home ownership.

Learning from the Past

In the distant past, it had always been touted that real estate was a great “investment.” Many, in fact, felt that their home was their biggest and most valuable asset. On average, the value of real estate tended to rise approximately 10 percent per year, rewarding many homeowners with not only a place to live, but also a nice pool of equity.

But then something awful happened. As home prices became more and more overinflated, real estate investors and “flippers” were cashing out and making massive profits – sometimes in mere days – buy buying and re-selling property to end buyers. Unfortunately, though, as the market began to correct itself, it was often those same end buyers who got stuck owing more than their home was worth.

Because of this, large numbers of homeowners stopped throwing good money after bad, and eventually lost their homes to foreclosure – a seemingly more desirable option than paying down a debt that was sometimes two or even three times higher than the value of the underlying asset.
As foreclosures have continued at a record pace, the demand for rental housing has also skyrocketed – and will likely stay this way until those with damaged credit due to a foreclosure can once again be approved for a home mortgage.

With this in mind, it is likely that there are many, either due to financial factors – or who simply have a bad taste in their mouth about buying – who will agree that renting is the better and safer way to go.

Moving Into the Future

Yet, for many of the same reasons that are cited above, one could also see a clear argument for buying – at least for those who in a financial position to do so. Because of the foreclosure debacle, banks have a substantial number of properties on their books that they may very likely be willing to part with for pennies on the dollar. Those who are able to purchase such a property could actually find themselves with a real bargain – as well as a large amount of immediate equity in their new home.

In addition to a myriad of available properties to choose from, mortgage interest rates are still standing at historical lows. With the federal funds rate at or near 0%, home mortgages are plentiful even at below 4% – and for those who have good credit, this can really provide a lot of opportunity.

Other Considerations Before Signing on the Dotted Line

Certainly, even with the large inventory of properties and the record low interest rates aside, the purchase of a home can have many benefits. First and foremost, owning a home is still considered by many as having “the American dream.”

Owning your own abode means that you can paint and carpet any way and any time that you want. You can plant your own trees or flowers, hang or un-hang curtains, and have a pet without needing to pay an additional security deposit!

Even with the potential maintenance and responsibility of home ownership, a place to call your own can make a big difference in how you live, while still providing the opportunity to build up equity for the future.

For those who are in the market now or in the future, there are some key points to remember, though, before making an offer on your dream home. First, the three rules of real estate, “location, location, location,” should always be your top priority when purchasing a property. This can have a big impact on the future growth potential of the home, as well as in the conveniences – or inconveniences – that you will need to deal with on a regular basis. So be sure to keep in mind that once you buy a house, you can always remodel, repaint, re-roof, and re-room – but you can’t change a property’s location.

Once you have keyed in on a great demographic, other important considerations should be the size of the home – including whether or not it has room should you need to expand in the future – as well as other amenities.

If you feel that buying is the better way to go – but your credit may not be in tip top shape – you may want to consider renting a home with an option to purchase it in the future. There are still many property owners nationwide who would much rather consider a rent-to-own situation than lose their empty property altogether.

Jennifer Ricci is a finance counselor who helps students and their parents in finding solutions for their student loan and college loan consolidation queries. She is also a contributor for finance related articles for a few popular blogs.

One thought on “Renting Versus Buying – How to Plan Your Future

  1. Another key consideration is a person’s stability. If their job and marriage are stable and they aren’t planning on moving, a house can be a great investment. If they lose their job or have to sell their house in a down market, it can really become a liability.

    My house is almost paid off, after which it will cost me around $285 per month for taxes and insurance. That’s not bad to live in a nice house three blocks from the beach. Meanwhile, the rent at my old apartment is around $1,600 per month. I shudder to think what rents will cost in my area by the time I retire.

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