When does it make sense to rent a home versus purchasing a home? Most people in the U.S. would agree that owning a home is one of their goals. Real estate, typically is a good investment and a good way to build wealth. The past few years have been particularly kind to the Denver metro housing market as we have seen double digit gains for the past six years. Homeowners build equity and they are also eligible for some nice tax deductions as they are able to write off interest from their mortgage payment (although this may change under the new tax law). Owning a home gives a sense of belonging, permanence and privacy. No more upstairs neighbors clomping around at 2 a.m. or dealing with bland walls that you are not allowed to paint.
The pros and cons:
1. Coming up with a down payment is a major factor in purchasing a home - particularly for first time buyers. To get the best interest rates, you need to put 20% down. For those struggling with student debt or just starting out, this can seem like an insurmountable amount of money. The good news is that there are many loan products available for first time home buyers that can change this equation. There are programs and loans that do not require such a large down payment and can help new buyers get into the market for less money. It is always a good idea to talk to more than one lender as different companies have different loan products. Make sure you are comparing apples to apples when you are looking at loans.
2. Owing a home requires some additional funds that renters do not pay. All maintenance issues and repairs fall on the home owner versus when renting, the property owner typically pays for repairs and maintenance. You will need to pay for home insurance and if you are not able to put 20% down, you will pay PMI. You may also need to purchase some items like a lawn mower that you would not need if renting. The flip side of that is that as a home owner, the money you pay each month on your mortgage is building your own wealth whereas rent money is helping the building owner build theirs. It is also possible to purchase a home guarantee that will cover many of these unexpected expenses for the first year.
3. Flexibility. Part of the equation for deciding to purchase a home depends on lifestyle. While home ownership gives you permanence it also gives you responsibility. Friends of ours recently sold their home of 30 years and moved into an apartment. They travel frequently, sometimes up to 30 days at a time, and living in an apartment gives them greater flexibility. They do not have to arrange to have the grass mowed, or worry about a pipe breaking while they are out of town. The landlord watches over their apartment, giving them the ability to travel at will.
Renting also might give greater flexibility in where you can live. For those wanting to live in downtown Denver or surrounding neighborhoods, it might be easier to find an affordable rental than to purchase a home. You can also move easily, if you are transferred or decide to check out a different part of the city. Most realtors would counsel that if you plan to move in 2-3 years that it does not make sense to buy a home. It normally takes a couple of years to make back your money once you decide to sell.
However, if you are in a place where you are settled in your career and planning to stay in place for a few years, then owning tends to make sense. The chance to build equity and wealth is hard to pass up.
We would love to buy you a cup of coffee and talk through any questions you might have about buying or selling a home. Give us a call!
See you in the neighborhood!