Ever since the recession started, people have been very interested in the debate between buying and renting. If you look at a real estate listing in most areas, you will see that houses are popping up on the market like crazy and it doesn’t look like an end is in sight yet. People are becoming more scared to buy because jobs are not as secure and they don’t want to negatively affect their credit scores, so they may start renting. However, there is still a large part of the population, mostly people around my age or a little older, who are out there looking for their first place because they no longer want to “throw their money away” on a rental apartment or house.
This topic is of particular relevance to me because I have been looking at options for San. He is in the real world – works full time and is paying back his school loans. He was only considering renting because he does not make a lot of money, but I started to do a little research on condos in the area and found that, with the help of many foreclosures, he could probably afford to buy if he wanted to. Of course, along with condos come association fees which can tack on a couple hundred dollars to his mortgage, but if he got a two bedroom condo, he could live with a friend and still pay about what he is paying now. The upside will be that if it is a foreclosure, in a couple years he will hopefully get all of his money back plus some extra, but one can never be so sure with the economy being so bad. Plus, he will build credit along the way – something we are both interested in because we want to be strong contenders when it comes time for a house, car, or other big purchases in the future. However, if he were to lose his job or move, this would not be a good option. He would need to stay there at least a couple years if not more, and being as young as he is, it is hard to make the kind of commitment. With an apartment, at least you can get out of the lease, but you will pay for it. Who knows if he would ever be able to sell the condo if an emergency occurred and he can definitely not pay for two places at once.
There are many resources to turn to about this debate. Here are some examples:
The New York Times has a great online resource where a person can enter their current monthly rent and compare it to a home price they could afford as well as the down payment, mortgage rate, and annual property taxes in order to determine whether it would be a smart idea to purchase a house or if they are better off renting. According to this, San would be better off renting, but that is only because he would be out a couple hundred dollars. It does not seem to take into account foreclosures which will probably appreciate a lot more because they are purchased for less than they are worth.
Yahoo Finance weighs in on “The True Cost of Home Ownership,” “How to Tell if You Can Really Afford to Buy,” and “An Appreciation for Ownership.” They also have a handy buy vs. rent checklist. These are important reads if you are thinking about buying or renting or helping someone else make the decision.
And lastly, although there are many resources out there, Yahoo Real Estate breaks the pros, cons, and costs savings down into useful charts which make it easy for anyone, even the financially naive (like me), to make an educated decision.
Now I’m wondering, do you buy or rent? Did you buy or rent when you were on your own for the first time? If you are not on your own yet (like me – although I suppose my on-campus apartment is considered renting) what do you plan to do when the time comes? I find these big life decisions fascinating, so if you wouldn’t mind sharing, I’d love to know where you stand!
My name is Sarah, and I am the dreamer behind Dream In Domestic. This blog is a collection
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Great question. After graduating college, we decided on renting a place in town until we could afford a house. We weren’t ready for a house and just wanted to settle into a rental while we saved and built up our credit. We actually thought we’d be renting for longer than we did (7 months) – and perhaps we would’ve if we’d been in a more upscale apartment. We rented an old 1950’s duplex – it was cute, felt almost like a house, and fit us pretty well. Of course, after a couple of months things started to bug us… we’d wonder if we could change out the light fixtures in the kitchen so we could see better, wanted to paint cabinets and install new blinds – just the little things we weren’t allowed to do. Once we started dreaming of owning our own home, we knew we were ready for homeownership and all the adventures that came with it – that, plus the 8,000$ tax credit and a buyer’s market – and we knew it was time to start searching. At first it was just to “look and see” what was out there, but before long it was serious searching – we WANTED a house – bad! We had technical things to consider, too, such as my new job stability (very stable by then), and how long we would stay in the house. By claiming the 8,000$ tax credit, we agreed to stay in the house at least 3 years – which worked out perfect, because 3 years from then (2 now) there’s a possibility that we’d have to move for Tom’s doctor residency. We’re hoping not (because we LOVE our house!) but if we have to, we can. So things really worked out well in our favor. The funny part? Our mortgage is only 50$ more a month than our rent was, and the electrical is 50$ less, so we pretty much break even on the monthly bills vs. rent. Of course, taxes and home improvement costs have cost us a ton – but we figure that’s what the 8,000$ was for, anyways. :)
I would suggest that after you graduate, you rent for a year while you “settle in” with a job and a new routine. You’ll be on your own, paying the bills, and loving every second of your independence. Then, once you feel ready, start the house hunt – and before you know it you’ll be a homeowner. But it’s a big decision, so I would say not to rush it, and make sure you can afford a house before you jump in. Just my suggestion – I know you guys will do what’s best for you!
~Chelsea
I wouldn’t recommend a condo, but that is a personal opinion. The association fees are basically like throwing money away. Plus you don’t have the other freedoms that come with owning a home. For instance, you usually can’t paint or do landscaping. I have also heard from people I know who work in real estate in the Twin Cities that condos are sort of tough to sell right now. So for what it’s worth, he might have a tough time reselling in a few years. If he knows people who might be interested in renting, then he could definitely buy a house and rent out extra rooms. I know people who do this and make enough money from renters to cover the mortgage. It’s a great option if he were to lose his job or run into problems in the future. Then again, there’s no harm in finding an affordable apartment and renting for a year. I do love owning a home, but I never could have imagined the amount of work and money (unforeseen expenses) that go into it. Plus if he rents for a year, he will have a year of work experience and consequently more job security when he does buy a house. Just my two cents.
Oh and I meant paint the exterior. I forgot to clarify. ^
Hey I loved this post!!! It’s very scary out there and buying a place is a very scary thing to do.
We own now but when we first moved out together we rented. I think that renting when you first move out is a great thing to do. You get to try out a few different places and see what you like until you commit to buying something. Try out neighborhoods. And if your not sure you shouldn’t buy because real estate agent fees are sky high and it costs alot to move. If I was starting out again I would rent until I knew exactly what I wanted. But I totally understand the dilemma. We went through the same things. Just do what feels right for you!
I have to say owning my own home really was the American Dream to me. I rented for a long time. I could afford a house payment but the down payment always held me back (20%) use to be what was required. I like owning my home because I can do what I want to it but it is a lot of maintainence and it helps having a husband that knows how to fix things. I also found out selling a house is not as easy as one might think. If you are going to move or not sure it probably is best not to buy because of the closing costs involved when you buy. Usually takes four or five years to make it worth while money wise. Selling can take some time which you might not have if you have to move for a job. Just some thoughts, Great resources sited!!!!