Knowing whether you should rent or buy will mostly depend on your finances. There are pros and cons to both renting and buying, but knowing which is better for you can be determined by doing your research on both your finances and the property you would potentially be moving into. Here are three important factors to consider when deciding whether to rent or buy your next home.
Location, Location, Location
The most important thing to consider first is the housing market in the area you’re looking to move to. Down payments, purchase costs, mortgages, property taxes, utilities, and maintenance fees will vary depending on your location. In some areas where the market is higher, renting would actually be financially smarter than buying, But in areas where the housing market is cheaper, buying would be a better fit if your finances are in good shape.
If you’re buying a home in a newer area, the maintenance and repair fees will be lower or non-existent, but the property tax could be more. Older homes in older areas may require more money for repairs. One benefit to renting is that renters generally don’t need to worry about maintenance and repair fees nor paying a property tax. In some states like NJ and California, where property tax and homeowners insurance is at its highest, buying may be difficult to financially manage.
Research has found that the Midwest is an affordable area right now to buy in, while cities like Manhattan are the most expensive. Make sure you do your research when choosing an area.
Return on Investment
It’s important to consider your return on investment when choosing whether to rent or buy. It would seem logical that buying would be a better return on investment since you won’t be owning the rental property, but that logic heavily relies on the current market. Right now, home prices are still lower than they were before but continue to increase. While this is good for those who are trying to sell their homes, those looking to buy may have to consider doing so within the next few years before prices rises again.
Another important tip to remember when it comes to return on investment is value. If you buy a home and put a lot of money into it, the value of the home when you decide to sell it can increase and be more than what you bought the home for. However, if the economy and the housing market take another downturn, you could be selling your home for a lot less than you invested in it. Financial experts like Ken Fisher, however, are staying optimistic despite the foreclosures and investment losses that occurred after the market dropped in 2007. (Ken Fisher is the CEO of Fisher Investments and Forbes columnist.)
Move-In Costs, Do You Have What it Takes?
Move-in costs for both renting and buying can be pricy; however, renting and buying will require different up-front payments and different amounts. You’ll need to financially prepare for both.
Generally, renting will require less upfront costs than buying. When you rent, depending on the owner or company you rent from, you’ll more than likely be required to pay a security deposit as well as administration fees, application fees, pet fees (if you have a pet), and first and last month rent. In some cases, first and last month’s rent may not be required at the time of the lease signing and some landlords and management companies may be running specials that cut the cost of upfront payments. Before signing any lease, make sure you review the move-in fees carefully.
Upfront payments required for buying usually include a down payment which may vary from 10-20% of the home price. In addition to a down payment, closing costs are usually also required. Closing costs can be anywhere from 2-5% of the purchase price depending on the location. Other fees may include inspection application and appraisal fees if you take out a loan as well as a transaction fees for the real estate firm. Experts also recommend purchasing home inspection and home insurance.
There are many more factors to consider besides the three important one listed above. A crucial tip to remember is to do your research before deciding. It is also important to consider your income and finances when deciding on renting or buying. Financial experts can help you manage your finances when you are preparing to move. There are many resources online as well as apps that can help you learn more about renting and buying and which may be a better option for you.