The Economics of Renting Versus Buying

Written by , May 30, 2011

The Economics of Renting Versus BuyingBuying a home is part of the so-called American Dream. It gives homeowners a sense of pride, as well as the freedom to do as the please (within reason and within the law) with their property. But there’s a lot to be said for renting, too. It doesn’t tie you down to a specific location like buying does, and it gives you definite advantages when it comes to property maintenance.

Whether it’s better to rent or buy is a matter of your specific economic and life situations. It’s important to take these into account when you make a decision.

Here is some advice to consider before you decide to rent or buy.

  • What kind of home are you looking for? Do you want a private house out in the country, a townhouse, or a high-rise apartment? Apartments are usually rented (but may sometimes be purchased), townhomes are generally bought along with rights to the accompanying property, and unattached homes may be rented or purchased.
  • How long do you plan to remain in the residence? Do you have a long-term job, or are you working on a contract basis? Do you love the area where you plan to live, or would you prefer to explore many locations before settling on one for the long term? Renting is certainly best if you foresee yourself moving in the near future, because it eliminates the need to go through all the physical work and paperwork (and expense) required to sell a home. If you plan on staying in the same area for many years, however, buying might be a better idea.
  • Will you spend more than five years in your home? Even if you think you might move after that, buying is generally more economical than renting after you’ve been at your residence for five years. This is dependent on the specific numbers of your situation, however, so it’s a good idea to do the math yourself.
  • Are you able to do routine maintenance on your home? If so, buying a fixer-upper house could save you lots of money. But if you’re not so handy, renting may be your best bet. When you rent, your landlord is responsible for any repairs that do not directly result from your misuse or abuse of the property. However, the landlord generally takes this into account when setting rental rates.
  • Do you have enough for the down payment? In most cases, buying a home requires you to put down a sizeable down payment in order to qualify for a mortgage. If you can get an FHA loan, you may qualify for a much lower down payment. But in most cases, you’ll have to give up a few thousand dollars to get the sale started. If you can’t do that, renting might be your best bet.
  • For some, renting is the best use of their money. For others, buying is much smarter and can save you money in the long run. Consider your individual circumstances to decide which option is best for you. If you’re not so good with math, an online mortgage calculator can help you decide.

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