Should I buy or rent is a question many first time buyers ask themselves – sometimes for years. There are plenty of studies and stats that will show you that in the long term you are better off buying and that more wealth is built through real estate than any other investment vehicle. In many parts of the DC metro area, your monthly payment will be lower if you buy than you rent. So yes, buying a condo tends to be the better option, but for some, renting is better.
Here are some things to consider when trying to decide between buying or renting.
How long do you plan to stay in your home?
This is probably one of the more important questions to ask yourself. If you know you will be in the area for just a year or two, it is probably better to rent. There are transaction costs when you buy and/or sell, which makes it hard to come out ahead.
However, “I’m not sure how long I’ll be here” and “I’m only here for x years” are not the same thing. I’ve had plenty of friends and clients tell me they are not sure how long they will be here for various reasons (“I want to keep my options open in case I get married”, “I might go back to grad school” or “I might change jobs in a few years” or my favorite, “I’m thinking of joining the Peace Corps”). Five or tens years later, they are still renting and meanwhile, the friend that bought, now has $100,000 or more in equity. Be honest with yourself on this question. Only you know the answer.
Are you financially ready?
Do you have enough saved up for a down payment and closing costs? Buying a home is not free and you generally need some money up front for the purchase. Now, there are options to reduce the initial outlay. There are low down payment loans of 5% or 10% for a conventional loan, 3.5% for an FHA loan and if you are a military vet, and even 0% down for a VA loan. It is also common to ask for the Seller to pay some or all of your closing costs.
You also want to have a little bit of a financial cushion. Don’t forget there are moving expenses to consider, even if it just pizza and beer for your buddies. You might need some new furniture and furnishings. And don’t forget to put two or three months of living expenses in an emergency savings account for life’s unexpected surprises. Being late on your rent might get you evicted, but being late on your mortgage could wipe out any financial gain you may have in your home, tank your credit score and get you evicted.
Are you responsible enough?
When you are renting and the dishwasher breaks, it is the landlord’s responsibility. When you are the home owner, it is your responsibility. When you are the owner, you also need to take care of any preventative maintenance. One advantage of buying a condo rather than a single family home is that the upkeep and maintenance are a lot less. Some condo buildings even have maintenance personnel on staff to fix minor problems.
The Pros of Home Ownership
There are plenty of advantages to home ownership that you should also consider. There are tax advantages that can save you thousands of dollars every year. There is the freedom to do what you want with your place. Lastly, there is security – there is no more rent or being forced to move.
