For young professionals and families alike, it’s the age old question: buy vs rent? We all know that there are lots of hidden expenses that go into buying a home but you’ve probably also heard that paying rent is like throwing your money away.
Related: Buy vs. Rent
Every situation is unique and you should always do an individual analysis in order to determine which option is best for you and your family. We’ve come up with 6 examples: 3 for when it makes sense to buy and 3 for when it makes sense to rent.
Here are three situations in which it might make more sense to buy:
If you know that your job is secure and your source of income will be very safe for the next 5-10 years it probably makes more sense to buy. Regardless of your down payment, with a secure source of income you’ll likely be able to withstand market volatility and still make your monthly payments. Desk jobs for the government or high demand fields like engineering and sciences generally have the best job security.
Willing to ‘Roomie Up’
Most young families wouldn’t want a roommate living in their garage but if you’re a young professional who’s been living with roommates for most of your life (whether it was your parents or college friends) you could come out way ahead using this strategy.
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Since a lot of young professionals like to live with roommates and friends anyways, you could buy a 3 or 4 bedroom house and rent rooms out to your friends to help cover most of the mortgage. You’ll still get to deduct mortgage interest and property taxes and you’ll be adding equity every month.
The average length of home ownership these days is 7 years. Most people know about the closing costs associated with buying a property, but the costs are even higher when you go to sell (5-6% range plus extras like staging and photos). That’s why the longer you plan to own your home, the less impact closing costs will have on your eventual sales price. If you know that you’re going to be living in an area for an extended period of time then it probably makes more sense to buy than rent.
Here are three situations in which it might make more sense to rent:
Even though you might be eager to jump into the real estate market once you get that new job, it’s best to wait. Get a feel for your new company: you’ll want to know if they’re hiring or laying off people over the next year or two and what the company’s financial outlook looks like.
Related Article: 5 Reasons to Never Buy a Home
After 6 months at the company, you might decide that you hate working there and look for a new job. Renting provides you with a lot more flexibility to switch jobs (and possibly move) if it turns out to not be the best situation.
By nature, contract employment is very temporary. This temporary status is generally rewarded with a much higher salary but that income could disappear at any time. Contractors can be fired and let go for nearly any reason so it’s best to take that extra income and save up while you’re renting. Employers use contractors to fill temporary employment needs so no matter what they tell you always assume the worst.
Just because a bank will give you a loan doesn’t mean you should go out and buy a house. If you don’t have at least 6 months to a year’s worth of living expenses saved up (including rent/possible mortgage payment), buying probably isn’t for you yet. Rent a place while you work on your savings and emergency fund and don’t consider buying until you have adequate savings.
A lot of people got burned during the last housing bubble because they relied on their income to pay the bills. With no savings, as soon as they lost their job they could no longer afford their homes. Don’t let that be you. Carefully consider whether it is best for you to buy vs rent.
Related Article: To Buy or Rent That is the Question
Photo Credit: stephen_fitts