To rent or to not rent? That is the question...
Welcome back to our series on Renting vs. Buying! If you missed Part 1 that discussed the costs of each option, please refer to our previous blog Renting vs. Buying (Part 1 of 3). This month, we visit the topic of how long you should rent before buying a new home based on purchase price, monthly rent, down payment percent, and home value appreciation.
Buying a home is almost always a smart move. Investing guru Warren Buffet states that real estate is a “valuable asset for a great many people” and one self-made millionaire calls home-ownership “an escalator of wealth.” However, buying before you’re ready can be a costly mistake. Let’s dive in to the numbers to see if you’re financially comfortable enough to make your dream house a reality.
Before any other steps, the biggest question you need to ask yourself is: How long do you plan on staying in your home?
Experts largely agree that you shouldn’t own unless you plan on staying in the home for at least five years. If your answer to the above is less than that, you might be better off renting for now. It’s best to buy when you have a plan set in stone and are thinking for the long-term. The longer you stay put, the more likely you are to regain what you paid in transaction costs and be able to sell for a profit.
NerdWallet’s mortgage expert Tim Manni explains: “If you plan to stay in your home for a longer period of time, buying usually becomes more fiscally attractive. Your home has more time to appreciate in value, and you have a longer time to spread out all the costs you incur when buying and selling a home.” Consider the charts below which show the break-even period (when buying becomes more advantageous than renting, money-wise).
As these graphs indicate, the financial advantage to renting is often short-term. Expert Tim Manni also states “over the long term, owning allows consumers to gain wealth by building equity in their home and often eventually allows them to move up to a larger, more spacious property down the line.”
If you decide to buy, you’ll want to use a mortgage calculator to figure out exactly how much home you can afford.
We hope that this series will act as a guide and provide enough knowledge to make your housing decision easier. If you have any questions on any of the above terms or comments about the article, please feel free to contact our team of accredited professionals at (858) 259-2960 or visit or Contact page. Be sure to check in next month for Part 3 of our 3-part series on Renting vs. Buying, when we dive into both the pros and cons of each.