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by Jesse Campbell on April 06, 2016

Rent vs own

Ask the Experts: Should we buy a house or rent an apartment?

My boyfriend and I are both over 55. Neither of us has children. We currently own a house in Albuquerque, NM. There are probably 23 years left on the mortgage. We are considering retiring out of state possibly to Tucson, Prescott, or Austin. I would like to sell our current home and reinvest in another home. My boyfriend feels that it would be more prudent to rent as we have no children to leave our assets to and it would make it easier on whoever deals with our estate on our passing. Can you outline the pros and cons of buying versus renting? Thank you so much. –Lisa

Hi Lisa,

The decision whether or not to invest in a house is a complex one. There was a time not so long ago when the prevailing thought was that buying was always better and renting was a waste of money. A mortgage, the wisdom went, was an investment. A monthly rental payment, however, was just money you’d never see again.

Even before the national housing crisis severely damaged consumer confidence in homeownership, the debate between renting and owning was already much more complicated than it seemed. Let’s talk about the different factors that need to be considered before purchasing a home.

Flexibility

Selling a house is a process. Renting an apartment or condo provides greater flexibility if there’s any possibility you may want to pack up and move someday. This is especially relevant for younger buyers who want to keep their career options open and may need to relocate in order to advance in their career.

Upkeep

Your house, your responsibility. One of the advantages of renting is that you’re not responsible for the occasional fixes your home will need. As a homeowner, however, if something breaks, leaks, or explodes, you’ll either have to fix it yourself or pay someone else to fix it for you.

Investment value

If you’re looking at a house as an investment, there are a few things you need to keep in mind. First, there’s no guarantee that your house will increase in value. Depending on a number of factors, it may actually decrease in value. Secondly, most loans (including mortgages) are front-loaded, with a greater percentage of early payments going towards interest rather than principle. When you factor in closing costs and realtor fees, even if the house does not depreciate in value, you could still lose money if you tried to sell it too early (generally within the first five years).

Risk

Homeownership comes with risks. No matter how well prepared you are, disasters do happen. Of course, everything comes with a level of risk, so that shouldn’t necessarily be a deciding factor, but just ask yourself what kinds of setbacks you’re willing to put up with and recognize that the risks are at least a little lower when renting.

Sense of ownership

Renting does come with restrictions. Precisely because you don’t own your home, you are beholden to someone else’s rules and guidelines. As the proud owner of a dog who does not fit in a purse, I know firsthand that your rental options can be narrowed by a number of factors. Renting means giving up a measure of control over what you can and can’t do with your living space.

Decision time

There is no right answer here. The best course is to decide what your priorities are and then see which option best fits those priorities. What do you value most? The freedom and stability that comes with owning your own home? The flexibility and reduced risk of renting? That’s up to you.

If you’re looking at things from a strictly financial perspective, the New York Times has a great calculator that can help you understand which option will cost you the most over time. This is where things like property tax and the inflation rate start to come into play.

This is a complicated decision, so it’s worth it to do your homework and some soul-searching. Good luck!

Posted in:  Family, Homeownership, Mortgages
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