Buying vs Renting: Take a Step Back

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If you do a simple Google Search on whether to buy or rent, I guarantee you that you’ll stumble upon a ton of resourceful articles.   I had a few friends asked me for advice on whether they should buy a house or not, but for some reason my stomach cringed every time I heard this.

After an epic meltdown in the real estate market, it almost seems like a perfect time to buy a property.   You can buy a distressed property for a fraction of the price and interest rates are at historic lows.   And for some people, this is enough reason for them to pull the trigger.

When I asked my friends why they wanted to buy a property, here were their main responses:

“I’m not throwing money out the window.”

This is true.   I can’t argue with this one.   But keep in mind that even though you’d be living in your own personal piggy bank, most of your mortgage payments will be going towards interest.   It will be years until your payments are distributed evenly between your principal & interest.   What about the likelihood of your property depreciating in value?   It’s very possible that depreciation could outweigh the total amount you’ve applied towards your principal.

It’s kind of like an investment…”

Yes and no. I won’t get into the specific details about whether your property should be considered as an investment.   One thing to always keep in mind is that you’ll probably end up relocating or buying another home in the future.   This means that you have two options: 1) Sell the property, or 2) Rent it out.   Selling your property can be a huge hassle, and it’s tough to predict what the market will look like 5 years from now.   If you decide to rent it out, you’ll have to deal with property management and constantly looking for tenants.

Keep it Simple

If you’re really set on buying a house, keep it simple.   Don’t explore creative mortgage loans such as ARMS or Interest-Only loans, I promise you’ll be fine with a 30 year mortgage.   Also avoid any creative type of financing, such as getting a 2nd mortgage.   I also promise you that putting 20% down on a home will make life easier, trust me.

If you’re unsure about whether you can afford a home, check out SmartAsset, they’ll take the guesswork out of the process and do all the calculations for you.

 

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