Is Now a Good Time to Rent?

I asked, as I sometimes do, what personal finance question my friends and Twitter followers had for me. It was a slow day on the internet and the responses flooded in.

My friend Neil asked, “what do you think about real estate?” A broad question, indeed, and I got him to clarify. “You know… should I buy a house? Why not just rent?”

Why not indeed.

The Dream of Home Ownership
I too bit off and gulped down the dream of home ownership when just a small lass. When I graduated from college, I moved to a Southern U.S. city — Charlotte, North Carolina — and like any young professional often in the company of older, established professionals — saw immediately that they all owned houses. And that this was very good.

What they had, I wanted: the houses with the staircases and the pretty backyard decks and the grand old trees in the back and the guest bathrooms with bowls of little colored soaps. I wanted a kitchen, with wide countertops and an arching clamp-hose faucet over the deep sinks and big drawers for flour and pot lids and recycling bins. And art on the walls, and a king-sized bed, and a walk-in closet, and a master bath.

My dream was only made more intense while shopping for condos in New York City, then in Reston, Virginia, with my 20s-era boyfriend. When he went to sign his first title, I went too, and we went out to lunch afterward at a restaurant on 54th street; we spent $112 and when I ate the tiny plate of tiny after-lunch sweets (a little cheesecake, a little truffle, a little gelee), I felt I'd arrived.

Years later, after the boyfriend, I became pregnant and my now-husband and I shopped for homes. My stories of those searches are intense and full of longing and stress; but by my fourth month of pregnancy I was living in house all my own. I vowed to never move.

Tip: Compare mortgage rates from multiple lenders for new home loans and mortgage refinance loans.

Other People's Dreams
I am — I was — the classic case for home ownership. I live in a small city and, when I bought the house, prices were reasonable; my mortgage payment is now less than many pay for renting an apartment. I love working on the yard and painting walls and I even tiled my bathroom myself (with lots of structural help from my father and husband). My husband is handy, and can run wiring and solder plumbing and he built a whole room in the basement. We're the home ownership success story (though admittedly we have a lot more work to do, and no walk-in closet, no master bath).

But for many people, home ownership should remain the stuff of other people's dreams.

I think my friend Neil is a good example. His ex-wife longed to buy a home in Los Angeles, where they had made a home after Neil's upbringing in New York City. The situation was probably even more intense for her than for me in Charlotte; their friends and colleagues owned expansive ranch-style show-homes and sweet artsy bungalows, in neighborhoods where the price-per-square foot probably neared four digits at the peak of the market. The mortgage on those homes would require all of one middle-class salary.

Even for the more economic choices, prices were high and there was no clear benefit to buying over renting; in fact, most mortgages would be more than the cost to rent a nice (and low-maintenance) apartment.

Neil wasn't good with a hammer or a chop saw, nor did his wife have any desire to keep a fine vegetable garden. There was no dad around to rip out old bathroom floors or teach Neil to solder copper pipes. Neil had no dreams of living in his home forever with his growing family; to date, he has no children and he's now divorced; he's not sure if he'll stay in LA for the rest of the year, let alone the decade. For him, home ownership is someone else's dream.

Should I Buy a Home?
For me, Neil's question was easy. “No,” I said finally. “I don't think you should buy a home.”

“But isn't that the goal?” he asked me. “Isn't that what you're supposed to do?”

Well, maybe. But I've found my own definition of “getting rich slowly” is often made up of doing few things that one is “supposed” to do; for me, living a double income, office job lifestyle is one such “supposed to” I've discarded. For Neil, I prescribed letting go of that “supposed to” of buying a home.

How to Know When You're Neil
Are you Neil? That is to say, should you too avoid adopting the dream of home ownership? Here are a few signs you may be Neil:

  • You are still a transient. Of course, we know I don't mean “homeless person.” I believe many of us today graduate college (or high school, if college wasn't the path for you) as transients, expecting to live in one place for a few years before trying out another, and another, and another, until one feels like home (or until you fall in love with someone who's rooted to a place, giving you a graft and rooting you, too). If you're not sure yet if this place is going to be your home for more than the next few years, home ownership is not for you. With closing costs and the uncertainties of the real estate market, it's very difficult to come out of a two-year home ownership transaction without losing money as compared to renting.
  • You have no desire to engage in home and garden upkeep. While some such people might hire gardeners and contractors to fill in the holes in their handy skills and passions, most of those who don't care to pick weeds or fix fences or mow lawns or plant apple trees are better off with an apartment. Purchasing a condo might be an option, if you don't say “yes” to any of the other items in the “are you Neil” list.
  • The market in your favorite neighborhood doesn't make sense. If the cost of a monthly payment on a mortgage would be greatly higher than the price of a two-bedroom apartment or other rental suitable for your family's needs — say, more than 25 or 30% higher — it's probably not a good time to buy. While indeed mortgage interest deductions and home buyer credits and the time value of money might be squished around to make the comparative cost similar, do remember that life is uncertain and markets fluctuate and maybe you should wait a bit — or look around for a more sensible neighborhood — before buying something.
  • You're not sure about your career or your job. Maybe you're considering going back to school to become a sommelier. Maybe you're pretty sure your boss wants to retire and sell the company. Maybe you just don't love your job and you're looking around for something new. If you're not fairly confident your next few years won't include a significant change in income, it's probably not a good time to engage with the home ownership dream.
  • Your relationship with your partner is rocky. I've been watching several of my friends deal with the tough decision over what to do with the family home when a relationship is over. In one case that worked out for the best — the family made a nice profit from the sale. But that was a rarity. If you're married, you might end up having to sell and take a significant loss, even if you'd rather stay in the house solo; if you're not married, things could be even more wonky. One woman I know lost her grandmother's home after a pre-marriage breakup (with someone who obviously turned out to be enough of a jerk to keep her grandmother's home, though that analysis is one-sided and second-hand, so take it with salt). Be honest with yourself, and know that, much like puppies and babies, houses do not fix broken relationships.
  • You would have to cash in retirement or emergency savings to buy the house. A home buying fund should be separate from those savings for emergencies and retirement. You'll have more emergencies, in all likelihood, with a home than without. And you know how we feel about retirement savings. If your dream is that intense, then you can use your intensity to fuel your frugality while you save up for the down payment.

It also makes sense to run the numbers through a rent vs. buy calculator to see if the results would influence your decision one way or another. Have you struggled with the decision to rent or buy? Where did you come out on the Neil/not Neil spectrum?

More about...Home & Garden

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
121 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Lance @ Money Life and More
Lance @ Money Life and More
8 years ago

If you aren’t financially and mentally prepared for home ownership I totally agree that it isn’t a good idea to buy. There are even arguments that buying a home isn’t a good investment either but that is for a topic for its own post. Overall I think if you are all settled down and think everything in life is stable and going well AND you actually WANT to own a home and deal with all of the chores that come with home ownership AND can find something affordable then you should buy. That is a lot of ANDs though…

William @ Drop Dead Money
William @ Drop Dead Money
8 years ago

The important issues are life, relationship and lifestyle issues. Well put. And a good counterpoint to those who mindlessly advocate buying a house. Financially, the #1 consideration is price, and in that the economic cycle is the biggest consideration. House prices are cyclical, meaning they go up and down. Buying when prices are high can be ruinous. Buying in a recession is good from many points of view. One the most important benefits of buying at a good price is you can sell when you want to with no fear getting in more financial trouble. If you move, divorce, or… Read more »

Elizabeth
Elizabeth
8 years ago

Good post! I’ve been getting a lot of pressure from friends and family to get into real estate, but I feel it doesn’t make sense for me right now. (I’m going to send them this post!) One of the biggest arguments against it is the market. Americans at least know their real estate bubble has burst. I’m waiting to see what happens where I live. It should be noted that owning a home doesn’t necessarily mean a house. I know a few people who own condos because they don’t have to deal with outdoor maintenance and big expenses (like the… Read more »

20's Finances
20's Finances
8 years ago

I agree – home ownership isn’t for everyone and in some markets, it’s just like throwing money away. I do want to be a homeowner, but I am also biding my time.

Eileen
Eileen
8 years ago

I like this article. I’ve read a few blogs that seem to be shouting about how buying a house is foolish or runs counter to the “new” American Dream. I think the buyers remorse that people sometimes have are from those very points you’ve made above — things you should consider BEFORE you buy a home. Also, I think a lot of people buy too much house and overextend themselves. That creates stress on a month-in/month-out basis. I have a friend that bought a home after he was married. He didn’t enjoy it and ran all the numbers and reasons… Read more »

Matt
Matt
8 years ago

Great post. In my current relationship with my soon-to-be wife, we’re struggling with this same issue. Really, it all boils down to two opposing viewpoints: – We want to have the space and security a house provides for growing families. Home ownership, as mentioned in the article, is the apex of the Great American Dream, and I guess we’re suckers for a good dream. Having a home to point at and say “that’s ours” makes me feel all warm and fuzzy. And renting feels like stuffing money down the drain and turning on the disposal. It pains us to write… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  Matt

I don’t think rent is “money going down the drain”. Rent covers expenses that homeowners have too such as insurance, property taxes, maintenance and some utilities. It’s not like your entire rent payment is going towards someone else’s mortgage. (A good part of it is, of course!) On a month-to-month basis, it may cost the same to rent as to buy but then there are renovations, repairs, maintenance, etc. to consider. I know people who own modest homes outright who pay as much to carry the home as I do in rent. I haven’t purchased a home yet, but I… Read more »

Ivy
Ivy
8 years ago
Reply to  Elizabeth

Couldn’t agree more. People often think of the mortgage payment when comparing to renting and forget the other expenses. Before buying our house we paid about $1200 monthly in rent for a 3 bedroom, 2 bathroom apartment in New Jersey. Our mortgage now is $850 for a bit larger house (adding a big family room and a big finished basement to what we had in the apartment). Since we are paying more, we’ll be mortgage-free in a few years, but will still have left $600 monthly for taxes (and that’s after we appealed and won a reduction) and $250 for… Read more »

Tara
Tara
8 years ago
Reply to  Ivy

Exactly! Owning a house doesn’t mean free housing – it costs me $10,000 a year in insurance, taxes and maintenance on a home that is paid for. But compared to how much it would cost me to rent a place, it’s relatively cheap.

Kat
Kat
8 years ago
Reply to  Matt

@ Matt: My husband and I have one kiddo and currently rent. I want a home mainly because of our daughter. We rent a townhome, and there’s no place for her to play outdoors. For her to do so, we have to make the drive to nearby parks (time consuming, gas, no privacy, etc.). I do have a dream of watching her play in the backyard while I do dishes or something in the kitchen and can just peer at her through the window. However, by the time this dream is realized, she will probably be “over” playing in a… Read more »

Rosa
Rosa
8 years ago
Reply to  Kat

It’s having a kid that makes me wish we *hadn’t* bought. We could rent a place with a yard (or even better, a small apartment building with a fenced play yard – there are a lot of them around here) and not spend so many hours doing yardwork on our own personal yard. But when we bought we were young, energetic, had lots of free time, and had roomates who came with us into the house. An old house that needed lots of upkeep and repairs, and a large garden to take care of, seemed totally acheivable. I didn’t consider… Read more »

Lindsay
Lindsay
8 years ago
Reply to  Matt

I agree that it is not money going down the drain. If you think it is bad to throw money at your landlord, just think about how bad it feels when you pay your mortgage and most of that money goes into the bank’s pocket. Example: my mortgage payment is about $525 a month. Out of that money only about $80 goes toward paying off my house! $325 goes to paying interest to the bank. At this rate, it will take a long time to have any real amount of equity in my home. The other thing is we also… Read more »

Becka
Becka
8 years ago
Reply to  Lindsay

Ouch. You must have a thirty year at a high rate? Ours is $535, and on the last payment, $312 went to principal. We’re only a year into the payoff.

Adam
Adam
8 years ago
Reply to  Becka

41 must be a 15 year loan. You can’t have 30 year and already be paying more principal than interest within a year.

chacha1
chacha1
8 years ago
Reply to  Matt

If you aren’t handy and your wife isn’t either, that dream is going to cost you big in hired help. The condo option exists, where hired help *is* more readily available for maintenance, but you really don’t “own” a condo – you own only the airspace inside the walls, under many contracts. Owning a single-family home is a post-WWII phenomenon … there’s nothing all that “traditional” about it. I personally want to own a residence for retirement but primarily so that our shelter budget is fixed. Again personally, there has been no time during my working life that owning a… Read more »

Michelle
Michelle
8 years ago
Reply to  Matt

I have two small kids and rent. However, they’re both extremely active, so I’m looking to move into a small home with a large, fenced yard. The big question is whether to buy or to rent. My husband is all for buying. I’m not sure if we’ll be in the area long enough for it to be worthwhile financially. That said, I have a degree in horticulture, so I’m longing for a situation where I can plant a garden and landscape without asking a landlord for permission.

Lincoln
Lincoln
8 years ago
Reply to  Matt

I don’t think renting or owning a home is “easy.” With renting, you are constrained with what you can do, and if an issue arises, the landlord decides how to fix/address the issue. Maybe you would have wanted to handle the issue differently. Often you are limited with owning pets and what you can do with decor. Also, maybe you like living in a rental, and want to renew, but the landlord decides to sell the place. You don’t have that many responsibilities, but you also don’t have that many rights. With owning, there are a ton of transaction costs… Read more »

Justin @ The Family Finances
Justin @ The Family Finances
8 years ago

My wife and I certainly met most of the criteria for homeownership, but our problem was that we didn’t buy a house in the right location. We can certainly afford our house, I’m gradually learning to become more handy, and my wife enjoys yardwork.

But the schools are terrible, and we are too far from my wife’s parents. We put too little down and are now stuck with no chance of selling our house for probably another few years (or whenever housing prices start to move back up). Ugh! Our house turned from an exciting purchase to a big mistake.

Emily @ evolvingPF
Emily @ evolvingPF
8 years ago

I’m a Neil and I’m not struggling with it! I love renting! The main, chief, #1, don’t-need-another reason is that we’re still transient. My husband has been in our city for 5 years (I’ve been here four) and we’ll very likely leave in the next two years when we both get our PhDs. I thank my lucky stars that neither of us could have afforded a down payment in 2007. Unless we get very lucky, we’ll probably live in one or two more cities for 2-3 year postdoctoral positions before we finally get to our ideal lifetime city, San Diego.… Read more »

Jennifer Gwennifer
Jennifer Gwennifer
8 years ago

Great post! You outlined many good points. I wonder how these reasons would line up against a person planning on buying a house vs. building one. With new construction you get the opportunity to customize everything exactly the way you want it, but can end up splurging for upgrades you don’t need. Also, when building your own home, it’s likely you plan to stay put for a long time, so you usually don’t think that much about the future sale down the road, and how your particular design style might affect it. Have people ever made changes to their house… Read more »

Paularado
Paularado
8 years ago

Jennifer,

I think that in many markets you can’t build a house for less than it’s resale value. In other words, you are upside down the minute you start. For some people, it’s worth it. There is a house going in a few doors down from me. They are about 1.2 Million into it. They’d be lucky to sell it for $800K.

Holly@ClubThrifty.com
8 years ago

I think it goes both ways and should depend on a person’s particular situation. Renting can be the right decision for people who live in areas with expensive housing, people who move frequently, and people who don’t want to do home maintenance.

With interest rates so low, buying has become a more attractive option for many. I personally own a home but it makes sense where I live. Renting is quite pricey in my area so it wouldn’t make much sense for me.

KP
KP
8 years ago

One thing missing on your list is can you rent something that meets your current needs. Often in small towns there are not the rental properties and purchasing a home is needed to find a place you want to live in.

Elizabeth
Elizabeth
8 years ago
Reply to  KP

Yes! My city has lots of rentals — student rentals! They’re over priced and not in great shape. It’s frustrating how that affects the market.

20s reader
20s reader
8 years ago

I like this article too – it’s well balanced and thoughtful. Pretty much the only things on your list I DO have are a strong relationship and a desire to garden, both of which can lead to wonderful happiness in a 1-2 bedroom apartment with a little outdoor yard or balcony space for the foreseeable future. I love not having to deal with fixing my own broken outlets and such, and having the potential for mobility, since there are grad school graduations and job changes coming up soon. It’s good to not want that classic “American dream,” at least in… Read more »

Sam
Sam
8 years ago

Lots of good points. We are a real estate family. We own a 1920s historic home as a primary dwelling and we have three rental properties and a fourth piece of land. A home, especially a historic home takes effort to maintain. Thankfully, Mr. Sam is handy and with three rental properties he has, at this point, undertaken just about every home project. There are benefits to home ownership, I would say the most important benefit is getting to the point where your mortgage is paid off and you are able to take the money you would put towards rent… Read more »

Paul
Paul
8 years ago

Since 2008, I have faced this situation three times. In 2008, I was in the Air Force and just moved to the Omaha, NE area. We had just moved from overseas where we had saved enough for a downpayment on a house. It was my intention to retire from the Air Force and find a job in the area. So we bought a house. I retired in 2010, and had interviewed for a couple jobs in the area. I don’t think I was a good fit with one company, and the other wanted three years of a certain kind of… Read more »

Marisa
Marisa
8 years ago

I live in a city where on paper, it makes sense to buy. Housing is cheap and plentiful. We thought about buying. But when we looked into it more, the rather small area that we were willing to live in was pretty expensive–at the top end of our budget. And all the houses are older and would require at least some renovation to make them liveable to us–none were at the point where we could just move in. Also, we’ll be here another four years at most, and I don’t want to be tied to a place longer than I… Read more »

DB
DB
8 years ago

We are really into DIY and gardening so that made the decision to buy very clear for us. I also see my friends and family who rent get hit with unexpected surprises pretty regularly – like my neighbor whose landlord just told them the rent would go up by $400/month for the next year term (they are foreign service so it makes no sense to buy). However, a renter doesn’t have to worry about the basement flooding or the new roof or the tree that needs to come down – they just call someone and it’s taken care of. I… Read more »

K @ Get Worth
K @ Get Worth
8 years ago

My wife and I didn’t struggle with the decision to buy or rent. We passed all the not Neil checks. Our issue was we bought way more house than we needed. It wasn’t that we couldn’t afford it, it was just too big. Now I consider how long it will take to clean a house before buying it. Excellent work on the Neil list, I think he’d be proud to have his name on it.

Sheryl
Sheryl
8 years ago

I think in general these are great guidelines to look at, but in practice some of them bother me. Being handy and enjoying yardwork isn’t necessary to enjoy homeownership. You can learn to do basic around the house repairs, and if you’re not too much of a DIY person just don’t buy a fixer upper. I think that’s a bit of an unfair yardstick. As far as financial/job stability … well you never really know, do you? And as long as you’re sure you can afford the home even if, say, one partner lost their job I don’t think buying… Read more »

Sara
Sara
8 years ago
Reply to  Sheryl

I agree with this. We own a house and while DH is very handy with electrical stuff, not so much with other things. We actually pay someone to do the DIY stuff – painting, installing new windows, etc. While it does add to the cost of home ownership, it doesn’t mean that we shouldn’t own a house. I think the biggest idea here is not to buy unless you’re sure you’re going to stay there. I think in the last housing boom too many young people bought houses – it’s psychologically a thrill to be a home owner at 22,… Read more »

stellamarina
stellamarina
8 years ago
Reply to  Sheryl

I agree with not buying a fixer-upper if you are not into DYI. I had a father who could do a rough but ok job on fixing things around the house. I expected that my husband would be able to do the same. After a few years I realized that this was not the case and when we bought a house I knew not to say ok to a house that needed work because it would just be frustrating to get my husband to work on it or expensive because we had to pay somebody to do it. I can… Read more »

Bridget
Bridget
8 years ago

Good post. Home ownership is not a big dream to me but I feel like everyone else I know is obsessed with it. It’s not a good investment in the city I live in (my rent is about $600 less than a mortgage would be for the same place) but people don’t look at that, they just want the “dream”

Eileen
Eileen
8 years ago
Reply to  Bridget

The better way to put it is that it’s *their* dream. There are real reasons to want to be a homeowner. There are also real reasons to NOT want to be a homeowner.

Thoughtful consideration (like the ones outlined in this article) is key to making a wise decision.

Monica
Monica
8 years ago

I’m curious if anyone can point me in the direction of a good resource for comparing the costs of buying vs. renting. This is a timely article for my husband and me – we have a baby on the way and hate the idea of staying in our 2BR apt after he arrives. There are virtually no children in our complex, and we want to be in a neighborhood. However, rental houses near us are very pricey. It seems like throwing money away. But, we’re not sure if buying a home is really the best option either. A mortgage is… Read more »

Rosa
Rosa
8 years ago
Reply to  Monica

Here’s a good calculator: http://www.nytimes.com/interactive/business/buy-rent-calculator.html It can be hard to judge, though. When we bought (2002) I thought a bunch of things that turned out not to be true: *local home prices had gone up so much already I worried we were at the peak of a bubble (ha!) *rents had been increasing way past affordability, and I assumed that would continue (instead, they stayed at about 2002 levels for 7-8 years and now are increasing again) *property taxes would remain stable. Instead, they are going up and so are city-run utilities. *my salary was stable. I was working in… Read more »

KSR
KSR
8 years ago
Reply to  Monica
Sara
Sara
8 years ago
Reply to  Monica

I totally understand the need to have a house with a baby on the way, but it’s really not necessary right away. Babies don’t play outside, and dealing with all of the stress of a new house while pregnant probably isn’t that fun! We started looking for a house when our first son was born, but we didn’t buy it until he was 2. So please, don’t be in a rush to be a home owner by the time the baby gets there.

Paularado
Paularado
8 years ago
Reply to  Sara

Monica, listen to Sara. You really can’t imagine what having a baby will be like until you have one. You’ll have a MUCH better idea of what kind of house you want once your child is born and mobile. Table this decision for a bit.

Monica
Monica
8 years ago
Reply to  Monica

Thanks for the suggestions! All good things to keep in mind! We’re trying to look at the situation realistically from all angles, which is hard to do when we’re so eager to have space of our own.

amber
amber
8 years ago

This is such a highly personal question. I am definitely a Neil but I have owned since 2009 and love it. I did a few things right in my shopping that ensure it would be a good fit. The number 1 best choice I made was I did NOT buy a fixer-upper. Believe me, I looked at some, and one even made my short-list because of the appeal of what could be there, but the reality of the situation hit home when I brought my parents out to see my choices. I showed them 4 houses that I really thought… Read more »

John
John
8 years ago

Although I am not transient (52 y.o. and have a government job that I expect to be in for the rest of my career), renting fits my needs. I am not handy and have no desire to spend my weekends maintaining a home and yard. There are not many condos in my area. I am single and live alone, so if I bought a house I would most likely be buying, paying for, and having to heat more space than I need. I have a 2 bedroom, 2-story apartment with no upstairs or downstairs neighbors. It is part of an… Read more »

Tina
Tina
8 years ago
Reply to  John

Second what John said. An important factor in measuring renting vs. owning is the amount of space one needs. I’m very happy in my 1 bed/1 bath apartment, but if I bought, I’d want at least a 2/2 for resale value and appeal. So I’d have to heat, cool, clean, and furnish at least 50% more space than I have now. (And cooling space in central Texas is nothing to take lightly.)

Melanie
Melanie
8 years ago

We are planning to relocate soon and after selling our current home we won’t be taking much with us from it financially. Therefore we feel like we’ll need to rent for a few years and save up to buy again. The only problem is we have 4 kids and a dog which makes finding a rental we can even squeeze into, let alone be comfortable very difficult. I’m not sure I can stomach a $2000+/ mo rent when a mortgage payment would likely be under $1200-1500/ mo.

Olga
Olga
8 years ago

I love this article. I bought a condo about 8 years ago, just before the prices peaked. It was mostly an emotional decision, after moving out of a house I bought with an ex. At the house buying time, we were a Neil. While my condo is now underwater, the mortgage and condo fee together are less than the rent for a comparable rental. So we are staying put and trying to make it work even though we have outgrown the space. One more item I would add to the list would be “distance to family”. Especially if you are… Read more »

David
David
8 years ago

“I went to the Home Depot yesterday, which was unnecessary… I need to go to the Apartment Depot, which is just a big warehouse with people standing around saying, ‘hey, we ain’t gotta fix sh*t!'”

– Mitch Hedberg, describing how I feel about home ownership

Budget & the Beach
Budget & the Beach
8 years ago

As someone who lives in LA, has a shaky freelance career, and hates home maintenance, I’d say the answer is pretty clear. I do hope to owe a place of my own at some point, whether it’s here or somewhere else…I just know it’s not possible now.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

I appreciate the “owe” instead of own: a convenient Freudian slip.

Bryallen @ The Frugal Graduate
Bryallen @ The Frugal Graduate
8 years ago

This is something the boyfriend and I were discussing only yesterday. I am about to begin a 4 year PhD in Biology, he is starting a 2-year Masters in Architecture. After I finish my degree I will be moving jobs every 3 years or so (the normal length of a funded research project), so I said that it would be a mistake to buy a house then. His vision is skewed by his architect-y mind and he believes owning a house is the only option. Much as I try to persuade him otherwise, he does not accept that renting for… Read more »

SLCCOM
SLCCOM
8 years ago

Never buy real estate with a “boyfriend.” Or “fiance.” Only husband! Things get really, really ugly when a breakup comes along.

Janice
Janice
8 years ago

See all the likes to SLCcom’s comment…repeat, do NOT, NOT buy *finance* with a boyfriend..

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

I hope the housing bubble taught us that a house is not necessarily a good investment. I worry when I hear people say that it’s a great time to buy because rates are so low. All that means to me is that rates will eventually go up. When the rates finally go up, the value of your home will go down. The timing could crush you Another thing to consider is the opportunity cost of your down payment. If you put down 20%, you have to consider that the 20% in the equity of the home could have been in… Read more »

Jane
Jane
8 years ago

“When the rates finally go up, the value of your home will go down. The timing could crush you”

Can you explain this in more detail? Is this always the case?

I’m genuinely curious.

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago
Reply to  Jane

Sure! I’m not sure if you’re asking why rates and prices are inversely proportional, or why rates inevitably go up from here, so I’ll try to answer both. When rates go down, you don’t have to pay as much in interest, meaning you can afford a higher-priced home than otherwise because more of your money can go towards payment of the principal. Sellers can then raise prices. When the opposite happens, ie interest rates go up, the interest payments eat up more of your budget. Therefore, buyers can’t afford quite as much in terms of prinicpal. Therefore, sellers are forced… Read more »

Jane
Jane
8 years ago

Thank you! That does help.

So I guess the smart way to go is buy when interest rates are high and be in a position to refinance when they are low.

Then stay in your house forever. 🙂

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

Haha! Perhaps that’s the smart way. You can usually refinance if rates drop, but not if you’re underwater or if you’re way behind on payments. I guess my point is that rates don’t really tell much at all about whether a house is a good deal or not. If it was that simple, we’d all be rich. A good investment, whether it’s a home, a stock, a bond, etc. requires much deeper analysis than simply looking at interest rates. Perhaps interest rates would be more telling if they weren’t artificially manipulated, however.

Mom of five
Mom of five
8 years ago

Without a doubt the smartest financial decision we’ve ever made is to buy our home. which we were very fortunate to get at a great price and we’ve stayed put. Like Sarah, we are homeowners at heart. We enjoy doing our own repairs. And with nearly all my husband’s extended family in the area and with the roots we’ve all put down on our own, we have no intention of moving. And in fact, we could meet our low monthly payments with odd jobs if we had to. I will say the biggest perk of not moving up once we… Read more »

WWII Kid
WWII Kid
8 years ago

Somebody up there must’ve sent this piece to me. I’ve lived all my life in extended family situations, paying rent to relatives for use of a room in their house. I’ve been unhappy with where I’ve been for several years now, but the rent is low enough that I’ve been able to fully fund my Roth IRA and 401(k) plus stash away a tidy little rainy day fund. I want (and can afford) a place of my own now, even if it does mean only throwing a percentage of my income into my retirement accounts. Part of me wants a… Read more »

Tyler Karaszewski
Tyler Karaszewski
8 years ago

You can barely find a house for rent around here, there are apartments available no problem, but there are hardly any actual houses, and even fewer if you have pets. We didn’t want to be subject to the whims of other people regarding what we can and can’t do with our own home. If I want a dog, I can get one. I built a chicken coop in my backyard. How many landlords would let you do that?

The best part about home ownership is the sovereignty you get over your own home.

Rosa
Rosa
8 years ago

Watch out for the HOA, though! I never realized til friends of ours started buying houses in the suburbs how tight those rules can be. My in-laws live on a lake but they can’t have a boat in their driveway after dark even one night.

Tyler Karaszewski
Tyler Karaszewski
8 years ago
Reply to  Rosa

I wouldn’t buy a house with a HOA.

chacha1
chacha1
8 years ago

Word.

amber
amber
8 years ago
Reply to  Rosa

My sis had to petition the board for over 6 months to install a clothes drying rack outside. Initially it was a flat denial.

Bella
Bella
8 years ago

Nail on the head here. The thought I have is that owning your own home also allows one a certain amount of freedom to explore money making/saving hobbies that are not likely available for those renting. For instance, my husband does a lot of car maintenance and restoration. This is a ‘productive hobby’ and while we are in not delusional in thinking that it will make us money – it’s ‘cheaper than sitting on a barstool’. But to rent a home that would be comparable to what we need to pursue this hobby in enjoyment (enough space to work, appropraite… Read more »

Meredith
Meredith
8 years ago

I wrestle with this too. I live in the Boston area where small single family homes start at $400k (the ones in our neighborhood we rent in are in the $600-700k range). We currently rent a 3 bedroom/1 bath (we are 2 adults/2 young kids) for $1600/month and are saving for a down payment to buy a house. We are living as frugally as possible to save up $75k in cold hard cash just for the downpayment to buy a house. I sometimes wonder if home ownership is even worth it. After I purchase a home, my monthly mortgage payment… Read more »

Kathryn
Kathryn
8 years ago

I think I’m more Neil than I’m not Neil. (One of) My current financial goal(s) is to save for a down payment on a house. And while at this point in my life (stable relationship with a homeowner), there’s no need to buy a home, I’m still gonna save for one. If it turns out that I never need/want to purchase a home, I’ll have that money for a lovely travel fund. Win either way.

thethriftyspendthrift
thethriftyspendthrift
8 years ago

My husband and I have evaluated our options time and again when it comes to renting versus owning something. Ultimately, we decided to look into purchasing a small one-bedroom co-op which, after putting down 30%, will be cheaper than our current rent. (This includes mortgage and maintenance.) Aside from the tax deductibility from the mortgage, our maintenance fee is also approximately 50% tax deductible. Down the line, if we want to sell it, we will get our money back in terms of a down payment and hopefully we make some money on the deal. If I break even, that’s fine… Read more »

Carla
Carla
8 years ago

As someone who was never in and probably will never be in the position to buy, this post is very refreshing. Those of us on the outside of financial stability and home ownership was made to feel inadequate and a loser for not being in the position to buy for far too long. Though having my own place to customize and make my own, having a garden, etc is something I’ve always wanted (especially after having grown up in a home that my parents owned) I know it’s nothing more than a pipe dream. With that said, where I live… Read more »

BD
BD
8 years ago
Reply to  Carla

Same for me. Owning a home will most likely never happen for me either…I’m too poor, and my life situation is too precarious. No significant other, no stability, poor health, etc.

I *was* forced out of SoCal by rising rents. I simply could not afford to live there any more. Had to move back in with parents…so humiliating. Still trying to change all the problems in my life. It’s so slow-going, and I’m already out of time.

Rita Vail
Rita Vail
8 years ago

If you are crunching numbers on this issue and still unsure, maybe it will help to check on what plumbers, electricians and carpenters earn per hour in your area.

I am now in the process of selling my house and it was quite the learning experience getting it ready to sell after many years of raising children and deferring maintenance on the house. If you don’t have the work done when it needs it, it will bite you in the butt later. And all houses need an amazing amount of upkeep.

Lmoot
Lmoot
8 years ago
Reply to  Rita Vail

I wouldn’t say this. If you speak to a number of homeowners I’m sure a few would tell you they haven’t had too much go on for x amount of years.

I’ve been in my house for 3 years and other than elective remodeling items (and needing to replace the roof per my homeowners insurance…which won’t need to be done again for 20 more years)I haven’t needed to replace anything. Of course it varies from home to home but I’d say a majority of the homeowners I know can go years without a major issue.

Audrey
Audrey
8 years ago
Reply to  Rita Vail

I just purchased a condo, and the people who used to live there didn’t like doing the preventative maintenance. I’m rather amazed to find out that they hadn’t burned down the building with the amount of lint that I found in the vent tubing (and the dryer “didn’t work” – no wonder they left it for me…). Little things to help along the way can do a lot to make repairs cheaper, and small repairs when they pop up can turn into huge problems if left unchecked. Something to be aware of with home ownership. The small leak that doesn’t… Read more »

Rita Vail
Rita Vail
8 years ago

One more thing – consider how much time you like to spend on house and yard upkeep.

Derek H.
Derek H.
8 years ago

I agree that a lot of people who are too young rush into home ownership but you also have to look at it from the perspective of the current market and you don’t want to realize in 5 years that you wished you would have bought a house when the market was easier or something. However, if you don’t think you’ll have that feeling for 10+ years, houses will still be around and I don’t see a problem with spending those 10 years putting away 1-2,000 dollars a year to go towards a hefty down payment.

Amanda
Amanda
8 years ago
Reply to  Derek H.

$2000/yr for ten years is a “hefty” down payment? Not in my neck of the woods. $20k won’t even get you 20% of a crappy condo here.

Jane
Jane
8 years ago
Reply to  Amanda

Alright – we get it. Lots of people who read GRS live in housing markets that are sky high. Invariably someone comes on a comment like this and says, “Must be nice to be able to afford a house for $150,000. That would buy me a cardboard box in San Francisco.”

I guess I tire of the repetition.

Amanda
Amanda
8 years ago
Reply to  Jane

Except his math flat out doesn’t make sense for most of America.

According to a May 9th, 2012 article (Bloomberg), the median price of a home in America is $158,100. Saving 10k-20k isn’t going to be a hefty down payment on that even if prices remain unchanged for ten years. Hell, even for your example of 150k, 20k (his high end!) isn’t “hefty.”

I admit, I am being US-centric, but I’ve only also known the market in Seoul, and you don’t even want to get me started on that market.

Jane
Jane
8 years ago
Reply to  Jane

You’re correct, Amanda, on the use of the word “hefty”. Only in very rural America would $20,000 be a “hefty” down payment. There are 2,000 sq. ft. homes for sale in the town my husband grew up in that are $60,000. These are nice homes.

But, no, for most of middle America, a significant down payment would be more in the range of $50,000.

Lmoot
Lmoot
8 years ago

I was always going to be a homeowner and knew it, even from the age of 10. It definitely has to do with the fact that most of my family lives here, and they are homeowners as well. Of course living in an area where homeownership is not just for the rich helps as well. I never wanted to rent, I hated renting (even before renting), and was forced to rent while I was in school…which only solidified my dislike for renting. If I lived in a different area, then maybe I would enjoy it. Mainly I like the idea… Read more »

cathleen
cathleen
8 years ago
Reply to  Lmoot

Me too. I couldn’t wait to get old enough to buy my first house! My grandmother owned 8 small houses when she died that she bought one by one with savings and rented them out. She was from the old country and owning land and a house was a big deal for her. I’m a DIY and a gardener and love all things Home & Garden. I bought my first house at 25 with a down payment my father left me (he died when I was 22) so I was fortunate in that sense. I paid $265,000 for it at… Read more »

Michael
Michael
8 years ago

I think another key is missing here –You need to be willing to compromise your dream. My wife and I rate high in the “should own” category. Very DIY, we rank high on the handyman scale, love gardening, renting is more expensive where we live etc. So, we bought when we moved to the Twin Cities 3 years ago. Our dream is to own a 5br home with a separate dining room on 5+ acres somewhere with water access and far enough out of town to hunt on our own land. Instead, we compromised and bought a small foreclosed 3br… Read more »

Brooklyn Money
Brooklyn Money
8 years ago

This article is very house-centric, which is fine because that is what most of the U.S. market lives in, but you don’t have a lot of these issues w/ a condo/townhouse. There is no yard and maintenance is a lot more affordable. Of course you also are paying monthly maintenance fees, so there’s that to consider. I think the market is the biggest factor to consider, which depends on location. I don’t think I’d ever buy in a small city/suburb. Not enough volume. In NYC/Brooklyn we have not only domestic buyers, but international as well, and renting out your apt.… Read more »

Jenna, Adaptu Community Manager
Jenna, Adaptu Community Manager
8 years ago

I’ve dreamed of home ownership since I was in high school (I’m weird I know). Now that I am a homeowner I love it. But I totally understand its not for everyone. My two big reasons to fight “Neil” would be 1) Buy a home you could rent out if you want to travel. I love my new house, but I’m okay with parting with it for awhile if I want to move to China for a couple of years for example. 2) Buy a forever home, something that can grow and adjust with you. Roommates now and babies later… Read more »

Ohplease
Ohplease
8 years ago

For me home ownership has been a very positive thing. I have owned 4 houses so far, 2 of which I bought cheap and flipped for a hefty profit. In fact, between 1999 and 2001 I made over 120K in profit which was a lot of money for my area in Canada. I have made a profit from the sale of all of my homes (less on the last one but that wasn’t a flip and I only stayed in it for 10 months) and will most probably profit greatly from the condo I have now. As a poster said… Read more »

Adam P
Adam P
8 years ago
Reply to  Ohplease

Making money flipping house is disgusting to me. A house is not a commodity; housing is for people to live in.

The housing bubble in Canada is very bad and the fallout when it bursts is going to be tremendous (see USA). Flippers like yourself are one of the principle drivers, along with terrible government policies which shift the risk from the banks to the taxpayers with the CMHC.

Good for you making $120k for your trouble, but don’t gloat about what has happened in Canada until you feel the aftermath when the bubble bursts.

Jane
Jane
8 years ago
Reply to  Adam P

Not to mention that house flippers often use the cheapest materials and cut corners to make even more money. The house next door to ours (which is identical to ours) was flipped. The flippers who are realtors bought the house for $50,000 and sold it six months later for $150,000. Granted that house was in bad shape and needed some fundamental work. There were holes in the ceiling and it didn’t have a working toilet. But I would have much preferred that the actual person who planned to live in the house do the work. My guess is they put… Read more »

Ohplease
Ohplease
8 years ago
Reply to  Jane

I lived in both of the houses I flipped and I didn’t use cheap materials which is why my houses sold well.

I am sure some flippers do use cheap materials.Sorry, I don’t know them.

My main motivator was because I like renovating houses.

lmoot
lmoot
8 years ago
Reply to  Jane

Builders build crappy quality houses too. Flippers are not all the same and often live in their “flips” for some time.

Many people have no desire to do DIY of any kind (whether YOU prefer they did or not). Just watch any HGTV show and you’ll see people walk away from an ugly paint color.

A lot of flippers are merely people who don’t mind putting in some sweat equity, then cashing in on that equity early from someone who DOES mind putting any sweat into a home.

bethh
bethh
8 years ago

I’m so struggling with home purchasing decisions!

My main motivation is that I want to have a place paid off by the time I retire, but the fact is that taxes + maintenance (+ HOAs if I’m in a condo) may largely equal whatever rent costs. So does it make sense to spend 20-30 years of interest? Maybe not. But I’m still turning it over – it’s kind of agonizing, honestly. And I think is one of those questions that emphasizes the personal aspect of personal finance.

Elizabeth
Elizabeth
8 years ago
Reply to  bethh

I’m right there with you! I keep thinking this decision would be easier if I had already met my husband and had kids. It’s so hard to buy for a future you can’t visualize yet.

In the meantime, the debate continues — and I can sock away more money for a down payment. I figure every dollar I put away now saves me about 30-40 cents of interest in the long run. It adds up pretty quickly.

chacha1
chacha1
8 years ago

Early in our marriage, we collected some peer pressure re: buying. Various friends were buying. We saw what they were buying, and where: small houses in undesirable neighborhoods, or big houses way too far out of town. We live in a large apartment in Beverly Hills, CA. To buy the same square footage in the same – or a similar – neighborhood would cost us roughly 3x what we pay in rent. We are soooooo glad we *didn’t have* the money we would have needed for a down payment, because if we had bought 6 years ago we would be… Read more »

Adam P
Adam P
8 years ago

Toronto is in a major housing bubble, just sitting on cash adding $1-$2k a month to my downpayment until 1) I retire and move some place not housing bubble crazy 2) house prices correct in Toronto or 3) I have enough saved to buy a house outright. Condos are affordable-ish but WAY overpriced relative to renting the same unit, and I have no desire to sink $500k into a box in the sky where you have mortgage interest, property taxes, one time special condo assessment repair bills, AND condo fees. I’ll let my landlord pay for those in return for… Read more »

Elizabeth
Elizabeth
8 years ago
Reply to  Adam P

Oh yes, and some experts say foreign investment has keep prices high in markets like TO and Vancouver. It’s all a matter of supply and demand and it doesn’t matter where the demand comes from.

I’m somewhat relieved that the government has set stricter limits on mortgages — like 25 year amortization or less. (No more 30, 35 or 40 year loans!)

Ru
Ru
8 years ago

I love DIY and would love to own my own home instead of renting. Renting is a landlord lottery- you might get the nicest, most chilled out one on earth, or you might get a money grubbing scumbag who doesn’t care about the upkeep of the property at all. I moved into my flat over a month ago and the landlord still hasn’t fixed a single thing on the list we gave him when we moved in (for those of you going “why did you move in if it’s so awful?”- the renting market for students in London is cut-throat… Read more »

BC
BC
8 years ago

We just moved to a new area for my husband’s new job so we are a bit on the transient side right now. In our new area there are very few nice rentals and a ton of affordable options to buy, but we still feel that we’re at least 3-4 years from buying because we want to pay off all of our debt first (only 8 months to go!) and then save up a large down payment and savings for repairs/maintenance before we purchase anything. We’ve been transient for some time following his academic career but our attitude has been… Read more »

stellamarina
stellamarina
8 years ago

Very thoughtful and well written article.

Kathleen @ Frugal Portland
Kathleen @ Frugal Portland
8 years ago

Goodness, I am Neil! Thanks.

shares