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Rent vs Buy, One More Time

By in Information For Buyers with 0 Comments

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This is a question people ponder all the time; is now the time to buy, or should I rent until the market improves? The answer is one of my favorites; “It depends.” I learned in grad school that unlike undergrad questions, grad school students were encouraged to use critical thinking instead of regurgitating a correct answer from someone else’s textbook.

So let’s think about this question a little more deeply. There are two big reasons why people have traditionally bought houses. They are shelter and investment. How they rank depends on the buyer’s motivation. The American dream has always included home ownership, and despite what some analysts say, I don’t think that will change. Up until about three years ago, home ownership was also a smart investment. Has that changed?

Consider this; we may not have seen the bottom of the home price drop yet, but I believe we are close. Don’t, however, expect a dramatic turnaround any time soon. Prices will remain low for a while, and even as the economy improves home values will appreciate modestly at best. Couple that with low interest rates and buying a home is more affordable now than it has been in fifty years. On the other hand, since credit requirements have become more strict many people are considering renting. The demand for rentals is high, and the supply isn’t keeping up. That is driving monthly rents up.

Let’s revisit the other reason people buy homes. The dream. We are privileged in this country to be able to own a piece of property, and for most Americans, that is a benefit they would like to have in their grasp. You will need to work a liitle harder for that benefit, but it’s there for the taking. Just don’t assume you will make a ton of money on the “investment.” Think of it instead as your castle. The place where you will raise your family. Your home base. And, since it is conceivable that you could own it for less than renting, it could improve the family cash flow. The catch; if you don’t plan to stay put five years, you may be better off renting. It could take that long to recoup your initial investment in the property.

The bottom line is the right choice will require critical thinking on your part. Do not rely only on what others, including me, write or say. Consider all the options, all the short-term and long-term costs, and decide for yourself the best option. If you have questions, call or email me and I will be glad to help.

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