With the recent housing crisis, more people started asking whether buying or renting a home is the better option. While the housing market is on the rise, buying still might not be your best option. Or maybe it is. Before you decide on whether to buy or rent your home, take these pros and cons into consideration.
When you buy your home, you become your own landlord. Not only will you be allowed to do whatever you choose with the property (taking homeowner association laws into consideration), purchasing your home allows you the stability of knowing that you won’t have to move unexpectedly should a problem arise with the property or the lease runs out.
On the other hand, things happen. Maybe you aren’t settled into your career, you’re still looking for a life partner, or you are hoping for a promotion that might send you elsewhere. Having a lease allows you the freedom to move about as you wish. It also prevents you from having additional costly expenses.
Many people believe that paying off their mortgage is the equivalent of paying rent, except they receive an asset in exchange. While this is true, there are several costs involved in owning a home including closing costs, regular maintenance, lawn care, home repair, bills, insurance, and home improvements and upgrades. When you rent a home and your refrigerator stops working or you have a leak, your landlord is responsible for purchasing and replacing the appliance or paying for the plumber to come and make the proper repairs.
Depending on your situation, it may be easy to decide the best option. But if you still aren’t sure and you are financially concerned, it is recommended to calculate the Price to Rent ratio (P/R ratio) by finding two similar houses, condos, or apartments (one for rent and one for sale) and dividing the sale price by the annual rent. As the P/R ratio climbs, it becomes more reasonable to rent, especially if the ratio reaches or exceeds 20.
Still not sure? Head to the New York Times ‘Is it Better to Buy or Rent’ calculator and plug in the numbers.