Many people, be they "experts" or not, have strong feelings about renting versus buying homes. Most lean heavily toward one or the other and rarely stray from their positions. But there are actually many factors to consider in the choice—and there is no "one-size-fits-all" answer.
Here are some tips on how to evaluate the pros and cons of renting versus buying, and why they ring true in the current market.
Renting may be the perfect option for those who are new to town. It's certainly wise to learn the "lay of the land," figure out the neighborhoods, spend time in the communities and decide what you love about your new city before diving into the homebuying process. If you move to town and immediately buy, you may miss the opportunity to learn commute times, traffic patterns, schools, walkability, neighborhoods, shopping—all things that can affect your happiness in your new home and community.
Renting could also be a great option for "short timers"—those uncertain about the future. This could include older people who may be considering assisted living or moving closer to their children, younger people who are not yet fully committed to a job or town, people "in between seasons" (marriage, divorce, job changes, etc.), and those who value flexibility and convenience over the permanency of a mortgage and maintenance.
The argument against renting is often that rent can cost more than a mortgage payment (especially on a short-term lease). That may be true, but renting is definitely going to cost less than buying a home you end up unhappy in and put back on the market a short time later. Once you close on a house, it's a done deal—that's an expensive day, and not one you want to enter into lightly or without as much intel as possible.
Buying for a lifestyle
With mortgage rates as low as they are, those who are familiar with their city and plan to stay for a few years, should, in most cases, seriously consider buying. House payments can be as low, or possibly lower, than rent payments in some situations, and homes generally appreciate in value over the long haul—whereas you can never recoup what has been spent in the form of rent.
The lending environment is favorable to borrowers right now and may be a wonderful opportunity for many aspiring homeowners. Contrary to popular belief, you just might not have to have a huge down payment—the option of a small one or even no down payment may be available in the right set of circumstances. Anyone pondering home ownership owes it to themselves to reach out to a Realtor, begin asking questions and investigate all their options.
Buying as an investment
Another reason to consider buying a home is as an investment. When home prices dipped in the Great Recession of 2008, we began seeing numerous home purchases for the purpose of converting to rental property. We also see more and more parents buying homes for their children in the city where the child goes to college, in lieu of student/dorm housing. This has worked well for many years in Chattanooga with UTC and other colleges nearby. With this strategy, the parents are able to offset the mortgage cost by renting some of the bedrooms to other students. Post-graduation, the property remains in the rental pool or is sold off to a third party—or in some instances to the child, now graduate/young professional, which serves as an investment in their child's future and an investment in the area the college is in.
Pros vs. cons/truth and lies
Certainly a common argument against renting is that you're missing out on a potential home's appreciation and you are "throwing your money away," but that's not always true. Market appreciation happens over time, not overnight. Taking the time to decide exactly where and what to buy, with the help of a professional Realtor, will far exceed any short-term appreciation. So the decision to buy should never be driven based on fear of "missing out."
Likewise, a common reluctance about buying is that it costs too much, but years of unrecoupable rent payments can far exceed what you'll spend on closing costs, home inspections and the other factors related to buying a home. With mortgage rates as low as they are, anyone who plans on staying put for the foreseeable future should consider themselves a strong candidate to buy a home.
Recouping your investment
People often ask me, "How long do I need to stay in a home to recoup my cost?" In a nutshell, I would advise knowing your area's rate of appreciation first. If your values are growing at 3–4 percent per year, then it may take two to three years to cover the transaction costs associated with selling (commissions, taxes, closing costs). A word to the wise: Always consult with your CPA or tax professional and always touch base with your real estate agent to lace together your strategies and tactics before selling. Decisions made in a vacuum will not serve you well.
Todd Henon Properties is a top Chattanooga-based real estate team serving Tennessee, Georgia and Alabama since 2000. Specializing in homes, land, farms and estates, Todd’s seasoned neighborhood and acreage specialists are known for their expertise in the sale and purchase of traditional and unique properties. Todd’s credentials as a general contractor and visionary land consultant give his clients a daily edge. A lifelong Chattanoogan and avid outdoorsman, no one knows the market better or loves the region more than Todd and his innovative team of respected agents. Headquartered at Keller Williams Realty–Greater Downtown Chattanooga (each office is independently owned and operated), the Todd Henon Properties’ team invites you to search for your next home or investment move at ToddHenon.com.
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