We're talking to you renters! Would you be surprised if we told you it wasn't always the right choice to buy? We process these decisions daily and we'll shoot you straight on the reasons to keep renting and when it's time to seriously consider making a new home purchase. We have to assess what's your current status of where you are living, your motivation for moving, and what your current rent is.
Let’s go ahead and get money-talk out of the way. Rent is probably the first real data point that we need to talk about to help you make this decision. If you compare how much you're paying in rent to how much of a house you could buy for that same payment, that's a really good launching point for this conversation. Let's be clear, when we say house, we mean any sort of property that you could own: condo, townhouse, duplex, or a standalone family house. Now, the way that you determine how much you pay in rent would actually buy in a mortgage is by just having a conversation with a lender.
Lenders Are Your Best Friend
Consulting with a lender is not as intimidating as it may seem, even a quick 30 minute conversation with them can be extremely helpful. You'll tell them what your budget is once you've calculated what you're currently spending monthly on your living expenses, what are you willing/able to pay if you're buying a home, what your credit score is, and how much you have for a downpayment. Based off of that they can kind of tell you, “OK, this is the ballpark that you could get for a house.” The two most important people to have on your team, if you're going to purchase, is a realtor and a lender.
Another thing to speak with a lender about is if your credit is in a place to buy. Maybe you're going to be surprised when you talk to them and they say, “Hey, we're going to need you to spend the next couple of months repairing X, Y, Z, paying off this, or saving up for a down payment.” They are experts at being able to coach you on what tools you need to be able to put yourself in the best situation to win the house that you really want. That part of checking your financial picture can never be done too early. It would really help you if you need to rent another year just to get yourself in the place that you want to be, to buy the house that you want to buy.
Before we wrap up this segment on lenders, let’s quickly touch on interest rates, because I’m certain that’s all you’re hearing on the radio and news lately. What low interest means to you, in basic layman's terms, is that you can buy more house now with the same qualifications. On the flip side you wouldn't be able to afford as much and would have to pay more with a higher interest rate. Now’s a great time to buy, because rates are low. Your income doesn't change, your debt doesn't change, the only thing changing is the interest rate, and the amount you can afford is now lower.
Your Home, Your Asset
Now that we’ve established what you are paying in rent and how much that equates to in a mortgage, you’ll have a clearer picture of what your budget is. It’s time to consult with an agent to see how much that buys in your desired location or at the very least you can look at similar houses in your price range on Zillow. Oftentimes we see people who are renting are doing so in a prime location as opposed to what they end up buying in. It's not uncommon to leave the apartment or condo that you are renting in uptown to make your first purchase in the suburbs.
Keep in mind, wherever it is you choose to move, owning a home is an appreciating asset. By renting you are helping landlords pay their mortgage and then some. If you choose to forego renting anything you will not only see the money again that went towards your principal, but most likely by the time you sell your home, the value of it has increased. So you're earning and making more money on top of that; which is not an option when you're renting. It's a hundred percent outflow when you're renting.
Speaking of landlords, you could have the opportunity to become a landlord and we see first time homebuyers do this in a different way than you might be thinking. Some first time homebuyers buy a home and have their roommates that they previously were renting with, move in and rent a room from them; in turn they are now helping pay their mortgage. Instead of being a renter, you now become a homeowner and a landlord. Your roommates are helping you pay your mortgage and the situation hasn't really changed for them. They're still renting like they were and you're now the one building wealth as a landlord. In general, owning property is the quickest way to build wealth. You're building equity, meaning you are paying down the balance that you owe on that house and someday when you go to sell it you will see that money again.
*Listen to Episode 3 and learn about all the details of house hacking.
What’s Your 5 Year Plan?
Now let’s do a little soul searching and a little game planning. Two important questions to ask yourself are: What are your goals and timeline? Where do you see yourself in the next 3-5 years? It’s important to consider any big life changes coming up and if a property will fit your life for the next couple years. Your goals and timeline will really give clarity on what home set-up will work best for your lifestyle. Things such as changing jobs where you have to consider commute time and salary. Or if you plan on expanding your family in the near future, you’ll need to take into account how much space you’ll need. Even something small like getting a puppy may change your point of view on the importance of a yard. Take a look at where you are and where you want to be. If you don't have a lot of clarity in that regard it may be best to continue renting for 6 more months; that way you are looking at what kind of property you would want to buy based on your timeline, not just what will work at the moment.
Good ol’ Pros and Cons List
Before we dig into the renting vs buying pros and cons list, we just want to remind you that there are so many options out there on either side. There is a solution and home for everyone. For example, if you’re concerned about maintenance there are other buying options to consider such as townhomes or condos. They are a lot less home and a heck of a lot less maintenance. There are always different homes for different buyers. Say if you don’t want to care for a yard you could budget to hire someone to do so or you can opt for a smaller lot with less outdoor space. Do you see what we mean? There’s something for everyone!
Renting
Very little maintenance.
Adhering to a landlord.
Renters insurance is inexpensive.
Your landlord will take care of things.
Possible rent spikes.
You can’t make permanent changes.
More likely you can live in the exact area you desire.
Having to move more frequently is costly.
You won’t see the money you pay for rent again.
Buying
Maintenance is on you or you can hire someone!
You’re your own landlord!
Homeowners insurance can be pricey.
All financial responsibility lands on you for fixing things.
Mortgage doesn’t change drastically until you refinance.
Your home, your rules, your style.
Likely you’ll have to move further out of your rental area.
General stability and ability to put down roots.
Homes appreciate every year, you’ll be building equity.
It all comes down to this; renting can give you flexibility, luminance, something new and close to an area that maybe you can't afford otherwise. While buying you get to build equity, build a place for you that you could be in for the foreseeable future, and get on the property ladder to start building that equity. Pros and cons we’re here for it, if you ever want to talk!
It’s Up To You
We started this off talking about what your rent would buy you and if maybe the next year is the time for you to get aggressive and start saving. You can make those decisions once you're better informed about what your financial picture looks like and how that relates to real estate in your area. We're just happy to help you really explore and understand the question of: should you be a homeowner or should you be a renter at this point in time?
*If you've decided buying is the right choice, check back on Episode 7 and 24.
Okay folks, it’s time to do your homework and run some calculations on what your current rent amount will buy in your area. Pair this with some soul searching about your willingness to own a home and the answer is going to be right in front of you. We're huge advocates for buying a home, but we ultimately want you to do what's right for you! Give us a call any time if we can help you process this decision. (Our contact info is thecastillogroup.net.) We hope all of this gave you a little more clarity and direction when it comes to buying vs renting.
Until next time!
Brianna & Keelie