How to Decide Between Renting vs Buying

Aaahh, the age-old real estate question of buying or renting. This one never gets old. “It’s a repetitive cycle of when the next generation will have this question.” I too was at the juncture at one point, and so was Jon, and several of our friends.

“The reality is that while for you it may be advisable to rent at that moment in time, it may be better for your friend to buy.” I find that budget and circumstances largely run the decision between renting vs buying. But other factors come into play.

Consider Finances

God, the relevance of money is insurmountable. Any financial advisor you meet would say that “the state of your personal finances is the starting point for any major life decision, including renting or buying a home.”

At this point, if you’ve started to budget for a home, ask yourself the following questions:

• Do you have a solid savings account?
• Do you have enough money for a down payment on a house?
• How’s your credit score?
• Can you afford the monthly mortgage payments, even if interest rates go up?

The answers to these questions can help decide whether you should rent or buy.

For example, imagine an individual who can afford to buy a home and cover the additional costs that come with owning a home. If that individual has terrible credit, the impact on their mortgage payments could upend the logic of buying a home. If you’re not in a good financial position, it may be better to rent until you’re able to buy.

Consider Long-Term Plans

Another thing to think about is your long-term plans.

• Are you planning on staying in the same area for several years?
• Will you need a bigger space?
• Will you change jobs?

Selling a home fast is easy in a strong housing market. But it’s the opposite if market conditions are unfavorable. With renting, you can usually sign a lease for a set period of time—typically one year—and then renew it if you want to stay longer.

Consider the Housing Market

With regards to the housing market, remember to things:

• It’s usually easier and less expensive to rent than to buy a home.
• Housing inventory should take precedence when deciding to buy or rent.

For example, if there’s a large inventory of homes on the market, it could translate into either lower home prices or more negotiating power for buyers. If there’s a low inventory, prices could be high, and negotiating power lessened; this could tip the scales in favor of renting.

When Jon purchased his home in Philadelphia, he took advantage of the favorable inventory and negotiated a reasonable offer.

Consider the Current Situation

In some cities and states, typically where the housing market is less competitive, it’s actually cheaper to buy a starter home than it is to rent. If this is the situation you find yourself in, then your biggest obstacle to buying a home will likely be saving for the down payment.

In other cities and states, the opposite is true. Austin, New York City, and San Diego are all examples of housing markets where it’s significantly cheaper to rent than it is to buy.

Summary

In our professional opinion, buying vs renting doesn’t have a clear winner. The winner is the situation, and you can decide accordingly.