It Depends.As the saying goes, "If you fail to plan, you plan to fail," and that certainly applies to getting the kind of home that you want!
RENTING
More Freedom of Mobility, Short Term Cost Saving, No Major Upkeep Costs but can cost you financial benefits, as well as sacrifices in quality of your living situation.
Renting is the first type of living situation most of us experience when we're young, though it is also completely normal to rent at any point in your life it if suits your needs. Renting is the best option for those who do not want to stay put for a long time at the same address, as compared to having a 30-year-mortgage for a home as an owner-occupant. Aside from that freedom of mobility, the costs within short time periods tend to be lower for renters, aided by the tenant not usually having responsibility for repair and maintenance costs of their apartment unit. It certainly is nice to be able to just call the landlord and put in a request to fix a leaky water pipe or take care of an ant infestation, for example, and by the time the tenant gets home from work, the problem has been solved without cost to them. As long as the tenant doesn't trash the apartment, that is - then they're probably not getting their security deposit back! On the other hand, as long as a tenant's apartment is in good shape when it's time to move out, it is nice to get that security deposit check to put toward the next apartment or a house.
Now, there are some big trade offs to living in an apartment, as a counter to all of those benefits. Having to share common areas, using coin-op laundry if you don't have an in-unit washer/dryer, and tolerating other tenants' noise or activity from time to time. You have to be a people person, and you have to be willing to make a few sacrifices to be a good neighbor, once in a while (like the guy practicing on his new electric guitar upstairs, and that funny marijuana-ish smell coming from his window, for example - though similar things can still happen living in a house). It's also not a total cakewalk to get an apartment, as tenants must often wait on lists for availabilities where they prefer to live. They need to be able to pass a credit check and meet other requirements before they can move in, which can make it even more difficult to secure a rental. Rented houses are a little different, allowing the tenant to avoid the lifestyle drawbacks of apartment living (not to mention, parking is usually less of a pain), but renting a house also tends to cost more. In fact, renting a single-family house usually reaches the price point where buying makes more financial sense than leasing over a shorter period of time, simply due to the higher rent payments. Finally, a word on location regarding renting a house: sometimes, you can only rent an apartment or condo in a popular central city neighborhood, like so many parts of Downtown and Midtown Sacramento. There simply are no houses in some areas of a central city, which can cost you on location if you prefer a house, having to be further away from the hot spots in town instead of renting in a multitenant building. If lifestyle was your whole motivation for living in the central city, then you can see the problem with this. However, if suburban or rural living is your preference, then a house is certainly a better idea. After all, there's something less glamorous about renting an apartment in a suburban area rather than the central city, and it mainly has to do with still needing to jump in the car to go anywhere! Then it feels more like settling for a multitenant living situation instead of accepting it because of the prime location you get to live in - then again, if it suits your needs, then go with what you want! To sum up on renting, it makes sense if you want: freedom of mobility over the years, short term cost savings on your living situation, and of course, no concerns about major upkeep costs (including property taxes). Otherwise, let's take a look at why buying your home might be a better idea.
BUYING
Equity Building & Tax Benefits, Long Term Cost Saving, More Stable for Raising a Family but the responsibility is greater, as can be the costs, requiring more commitment to your living situation.
For the more permanent resident, buying is clearly the smarter financial choice over the long haul. Renting may work well for the following: young adults still deciding which city they identify with, college students who only need to live somewhere for a few semesters, and others who simply don't want to be tied down in one area for too long, and to each their own, but if you have the more traditional desire to live in one place, then buying your home is the best option. Added benefits of buying are that you can watch your kids grow up in the same house and enjoy an uninterrupted social life, as well as being able to leverage the financial benefits of homeownership over time. Renting quickly becomes a bad decision after calculating the longer term costs, as you can see. Lost equity is one of those costs, and if you understand how retirement saving works (save sooner, gain more interest on your nest egg, to be brief), you can see the lost opportunity at stake in just paying rent each month, with nothing coming back to you. Equity is the ownership stake, you could say, that a homeowner builds up in a mortgaged property. Think of it as the percentage of the property that is paid off and actually belongs to the homeowner. It is also the amount against which new home loans may be taken out (by qualified borrowers), so it can be like a credit card with a high balance (actually a HELOC is just that). Ideally, when a mortgage is paid off (or amortized ), an individual homeowner will have 100% equity in their property. If the home value were to rise from $250,000 to $260,000 in one year, they would realize 100% of that $10,000 gain on their investment. Pretty sweet, huh? All they had to do is own the house to earn 10 grand in net worth during that time period! In such an ideal situation, you can see why some people take out reverse mortgages, because for all normal intents and purposes, talk about a solid credit line! However, in most homeowner's situations they do owe a mortgage balance, so it is easiest to think of the equity in their home as being the current market value of the property less their mortgage balance plus any other liens (that is, recorded secured debts that claim the property as collateral). As a demonstration, if your house could sell for $300,000 at the time and you owned 45% of the equity in the house, then you'd have a gross home equity of $135,000. See now why it's better to be putting your monthly payments into a mortgage, and thereby contributing to the stake you own in your home? The longer you pay off a mortgage, the greater amount of each monthly payment goes toward the principal (original loan amount), also, so you build equity faster as time goes on. Aside from building equity and having your feet planted in one spot, which gives your children stability for getting to grow up with the same friends all throughout K-12 school and allows you to really become a part of your local community, as additional pluses, buying a home offers a tax shelter of sorts through the magic of qualified write-offs. In all things financial, we must always consider the tax ramifications. After all, death and taxes are the proverbial two guaranteed things in life! So, this is another way that homeownership is a better choice than renting. You may have less responsibility toward your home and more freedom of mobility as a renter, but at a staggering loss of potential financial gains over longer time periods.
Now for the obvious setbacks compared to renting: primarily, you had better like where you live, unless you bought the house with the intention to rent it out to others, or improve it then re-sell it (AKA "flipping it"). Otherwise, if planting roots is not what you want to do, then a mortgage on a house will be difficult to pay off in a short time period, and hinder your ability to move around more freely. The next downside to buying a home instead of renting can be the cost of doing so, in some cases, because owning a home can cost more each month than renting. You get what you pay for, as with everything else, so this is not a big surprise. Now, it is possible to buy a condo or smaller house for a resulting mortgage payment that would be similar to the cost of renting an apartment each month (depends on the mortgage term, rate, and how much money was put down, of course), but if you want to own a 3 bedroom house, for instance, it will take a higher payment each month. That usually includes the principal, interest, taxes, and insurance costs each month (also called the PITI). Having a long term home loan requiring payments like this can be daunting to some, which is why it is important to remember that buying a house involves paying extra for a higher quality living situation, and you should only choose this option if it is right for your longer term objectives! You will own the house when you buy it, of course, which will grant you the homeowner's bundle of rights that renters do not enjoy. This simply means that you would have the right to sell the property again, rent it out, make certain allowable improvements to the property, and within the realm of local laws and (if applicable) homeowner's association rules, do whatever you wanted with the property, and even decide who gets to set foot on your land. That's the difference, in brief, between owning property and just living there as a renter. To some, this added status means a lot, while to others it only matters that they are allowed to use the property, and actual ownership is less crucial to them, so again it comes down to your personal preferences in this regard.
To sum it all up, you can see that each method of living has its advantages and drawbacks, so it depends entirely on you! In our great nation, we have the freedom to decide which method suits our needs the best, and as with any freedom comes responsibility. As long as you accept the responsibility of planning your life properly, the decision about whether to rent or buy a home becomes incredibly easy! Then it just depends on your current capability to financially support whichever living situation you've chosen, but Premier Midtown Realty can help you whether you wish to rent or buy. Click here if you have decided to rent your next home, and we can help you make the best possible choice in Midtown Sacramento living. If you are ready to have your very own home and would like to find out how to get pre-qualified with one of our trusted lenders (then the fun part - go house shopping), click here to learn more about buying your next home with the benefit of a skilled Realtor on your side. Buyers don't (in most cases) pay their Realtor out of pocket, as it is traditionally the seller who pays the buyer's agent for their services. Pretty cool, huh?
Now that you have a way to carefully look at the "rent vs. buy" conundrum, let us help you make the next step if you are ready, and find your new home!
Premier Midtown Realty: "Your Partners in Midtown Sacramento & Central Valley Real Estate!"
Ryan Wagner, California Real Estate Broker. CA BRE license # 01968073.
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