Buying vs Renting And Other Options To Consider
In what may be one of the biggest decisions you make in your life, and one of the largest debts you freely agree to, have you taken time to check out all of your options? In what situation is it better to buy than to sell? In an unstable economy, it’s important that one is well informed on the possible pros and cons of such a decision. Let’s start by discussing buying, renting, renting to own, and a cash flow option.
Buying a home seems to convey the most commitment. This person tends to have interests in staying with this property for more than a couple years. The location may be ideal for a family and allow for a comfortable home life. This individual will get the entire home-buying experience, from the hefty down payment of about 20% (depending on your credit score), to the small details like home repairs and upkeep of the property. Interestingly, some people claim that owning a home may increase one’s chances of stress-induced mental/health problems. Others might attribute such issues being marital and/or family related.
Renting a home may be a more affordable option depending on the location. Renting doesn’t require the same investment as buying does, so if you’re continuing your education or considering a career change, renting might be a better option for you. This individual may choose to rent a smaller property to save money for a future home purchase. As a renter, choose what best satisfies your needs. Buy only things necessary to make it home for now. The larger the rental property, the more money you may waste on furniture or goods that may not be of use to you in the future. Sometimes there’s an added bonus to being a renter, many rental properties can be found furnished and require little maintenance and financial investment.
An alternative to buying/renting might be renting to own. Instead of initially purchasing a property, a potential buyer and seller agree on a contract, in which monthly rental payments are made based on the home’s value. These rental payments are often priced at above market rates, which allow for rent credits. Rent credits is the difference between the above market rental rate and the fair market rental rate which is counted towards the potential sale. After about 2-5 years (depending to their contractual agreement), the renter can choose to buy the home at the original price minus the equity he/she has paid into the property, or move somewhere else.
If none of the above options sound like something of interest to you, maybe initially buying a property and then leasing it out is a better option for you. This option is similar to the first option we’ve described. The only difference is that you may move somewhere else and place tenants in the property to cover your expenses. Usually, if the homeowner has a low monthly payment, they can markup the price to make some cashflow. For example, if a homeowner have $750 of monthly expenses (mortgage, insurance, taxes, etc) and he/she charges the tenant(s) $1150 a month to rent the house, then the homeowner can make a monthly cash flow of $400.
Before any serious research, consider the location. This small, but incredibly important detail will influence the price substantially in all cases. Then, consider how long you plan to stay at this location. If this location will be a place for you and your family, choose to reside for at least 5 years. Don’t hesitate to look into home-buying options (there may even be a sweet tax deduction just for buying a house). Do not simply make a decision based on a “possible” tax break, or just to say you own a home. You want to be absolutely positive that you are getting the best possible value out of your investment. Make sure that you do your due diligence!
If you enjoyed this post, get email updates and exclusive content from us by subscribing below to our email list (it’s free).
Tags: apartment, Boston, buy, California, cashflow, Charlotte, Chicago, columbus, condo, credit, Denver, down payment, due diligence, duplex, home, homeowner, house, Indianapolis, insurance, investment, Jacksonville, landlord, lease option, loan, location, Los Angeles, maintenance, michigan, mobile home, mortgage, neighborhood, New York, options, Philadelphia, Phoenix, properties, property, relocation, rent, rent to own, rental, sell, tax, tenant, Tennessee, texas, Washington