Rent Or Buy - Why I've Decided To Rent Rather Than Buy a House For Now
Published 12/11/07 (Modified 12/16/14)
Conventional wisdom suggests that it is always better to buy a home than to rent. After all, when you rent you are given no tax breaks and you are not investing your rent payments into anything that will appreciate over time. I don't disagree with the pro-buying sentiments, but I think during major housing recessions we need to rethink our strategy. Unlike stock market corrections and shifts, the real estate market trends are slow to act and slower yet to cycle through the changes. Like a sloth, the housing market inches slowly downwards and upwards and I think we've only yet begun to see the worst of the housing collapse.
Buying a home is usually a much better option in the long term compared to renting, but I think these are different times. I have every intention to buy a house in the future - just not at the present moment or for the next 2-3 years at least. My short term goal is to invest my funds in the stock market and continue to save. I currently lease a brand new condominium unit I discovered through Craigslist. Ever since college and graduate school I've been renting and I think it's been a smart decision. I did not have the funds during my earlier college years to purchase a home, so I missed the housing boat. My best bet now is to enjoy my rental lifestyle for a few more years, and continue to grow my eventual down payment.
Aside From the Obvious Timing Reasons, There Are Many Benefits and Other Reasons Why Renting Now May Be Better Than Buying a Home:
- Renting Allows You To Keep Your Housing Options Open - When you buy a home, due to capital gain exclusion requirements, you essentially have to make the home your primary residence for at least 2 out of 5 years to take advantage of capital gain tax breaks of up to $250,000 for singles and $500,000 for married couples. Because of this and the expensive transaction costs associated with selling a house, moving from one house to another isn't easy. For those whose lives are in flux or for those who are single without a family yet, renting is a very attractive option because it affords a lot of flexibility and allows one to not be tied down to one geographic location. Being tied down limits your employment options and commits you to a certain area. Since graduate school, I've had unanticipated employment shifts and I'm thankful I chose to rent rather than buy, because it allowed me to continue moving closer to my changing work locations whenever my life events changed. Renting also allows you to experience living in different types of apartments and locations without long term commitment. I've enjoyed living in a wide array of places, moving from ghetto roach and rat-infested apartments as a student, to a relatively posh pad now as a working guy.
- With Renting You Don't Have To Worry About Upkeep - When you are renting and something breaks down, it's the landlord's job to call maintenance and fix it. Dishwasher broken? No problem, call the landlord. But when you own the home, it's yours - it's your castle and you're responsible for it. If there's an expensive appliance that needs fixing or replacing, it's coming out of your own pockets.
- Housing Is A Terribly Overpriced Investment Right Now - In the long, long term housing prices do tend to cycle upwards, but the real estate trend travels in slow speed, in contrast to the frequently short burst movement of the stock market. We are currently in a baby bear real estate market and my assessment is that this bear is still not full grown yet - translation: we have many more years to go before the housing market will plateau and head back up again. That's my own assessment but I'm sure the NAR will disagree. Although housing should be viewed as your home first and foremost, I think one can't overlook the fact that it is still an investment. As with all investments, I want to choose the best entry point and I don't think this is the best time yet.
- The Mortgage Interest Deduction Is Over-Hyped and Frequently Overrated - The mortgage interest deduction is one of the most popular tax loopholes used by taxpayers to reduce their tax burden. But for those who want to eagerly purchase a home to take advantage of this deduction, I hope they are motivated by more than just tax reasons alone. Those who want to hurry and buy a house to save money on taxes likely haven't actually crunched the numbers. Depending on the buyer's income, the deduction may or may not be all that beneficial since it greatly favors higher income families. Spending a lot of money in this depreciating real estate market to save a little bit of money is not necessarily the best move right now.
- Renters Insurance Is A Lot Cheaper Than Homeowners Insurance - I personally don't have renter's insurance (danger is my middle name), but I do know that renter's insurance is substantially cheaper than homeowner's insurance. It varies greatly depending on your location, but to give a general comparison of the cost difference, renter's insurance is generally about $100 a year, while homeowner's insurance is generally about $500. Now if your home is located in a natural disaster prone area like hurricane friendly Florida, than the rates could be even higher than what I've indicated.
Owning a house is the ultimate American dream. I certainly haven't given up on it but I'm just choosing to put it off until the right time. The moment will arrive eventually, just not right now - so I've chosen to rent in the meantime.