The decision to buy a home is not one that is taken lightly by most. It is among the largest purchases (if not THE largest) one will make in their lifetime. Not everyone is in a position to buy vs rent. For this reason, as realtors in the Northampton area, we always suggest that a potential buyer start the process by speaking with their local bank or a mortgage broker to determine whether they can afford to buy and, if so, what purchase price is within their range.
To me, real estate has always made sense as a place to invest money. It seems less fickle than the stock market, and you have the added benefit of being able to live in and enjoy your home, while (hopefully) building equity. While the following piece from the Daily Hampshire Gazette uses the San Diego real estate market to make it's point about the benefits of home ownership - it is still a salient one. If you are in position to be able to buy a home vs. rent, it is an investment worth making. It's always a good idea to work with a knowledgeable buyer agent when purchasing a home. In this way, you are more likely to negotiate a fair price, and choose a home that has solid resale value. Read on for more about buying vs. renting.
Buy vs. rent: Can you afford to wait?
Buying a home is probably the biggest financial decision most of us will make. Dreamtime
By San Diego Tribune Staff
Buying a home is probably the biggest financial decision most of us will make. While many variables factor into that decision, one key element is whether it makes more financial sense to buy a home rather than renting one.
According to industry experts, it depends on how long you plan on staying in a home.
“Given certain parameters, I can tell you that if you intend to be in a home for three to five years, it is almost always better to buy,” noted Matt Brady, a loan officer at Skyline Home Loans.
That’s because even though there is sizeable upfront expenditure when buying a home, you’ll be seeing the benefits after a few years.
Principal reduction is the amount paid on the cost of the home itself and not the interest. The idea is that by the time you plan on selling the home, you’ll have paid some of the cost of the house and will get more for it than you paid for, resulting in spending less over time than you would have renting a similar place.
Although home prices are high in San Diego — the median price is $535,000 for a home, $400,000 for a condo and $623,750 for new construction — area rent is also high and increasing. The median rent for a one-bedroom is currently $1,560; for a two-bedroom, it’s $2,020, according to the latest figures released by Apartment List, a national rental marketplace. That’s a 4.6 percent increase over last year.
Brady calculates the financial benefits of owning a home this way:
According to the National Association of Realtors, most people own a home for approximately nine years before selling. If a renter initially pays $2,200 for a two-bedroom home, after nine years, the rent will have increased to $3,000 at a 4 percent increase per year.
While the renter will have paid around $40,000 less in rent over those nine years than a buyer who purchased a $400,000 home, the owner’s home will have appreciated by about $200,000 in those nine years, Brady said. (And while no one can predict the future, most analysts assume that home prices will continue to rise and that San Diego will stay apace with the national average of a 4 percent annual increase).
The homeowner also will have paid down the mortgage by about $73,000 and had the added tax benefits of owning a home, which according to Brady would be about $40,000. In nine years, a buyer is ahead more than $225,000 from someone continuing to rent.
“The bottom line is unless you can rent the $400,000 house for $1,500, it makes much more sense to purchase it,” Brady said.
Buying a home is not for everyone. Renting is often less stressful and more flexible. But if you’re ready to settle into one place for a while, go over the numbers to see what works best for you.