It’s pretty much impossible to get away from right now. It’s all over the news, all over social media, your friends are doing it, everyone seems to be talking about real estate and buying houses. Should you buy a house right now or continue renting. We are going to go deep on this and compare the pros and cons of buying or renting a house so stay tuned…
What is happening everyone, I’m your man Wesley Guest and like I said, for this blog (or the video above) we are going to go deep to compare the pros and cons of buying or renting a house (or condo). My primary market is going to be San Diego but the fundamentals I’m going to discuss will apply in pretty much any market in the US. I’m going to show you why buying a home is not actually the best option in some cases.
So I think probably the number one obstacle most people think of when buying a house is going to be the finances (can you afford it?). That is a valid first thought and 100% makes sense but I think the question most of us should be asking first is does it make sense to become a home owner.
Home ownership is the American dream right? At least that’s what we are told. It’s important to know that when you become a home owner, you take on a lot of satisfaction and pride, but you also take on plenty of extra costs and maintenance.
Here is a short list of questions you can answer that I came up with to help you determine if it’s the right time to buy a home:
- Are you in debt? Are you carrying big credit card balances? Maybe you still owe a significant amount for that amazing bachelors or master degree? If so, get it paid off. Debt can prohibit you from getting the best loan deal or a home loan at all, in addition to reducing your home affordability.
- Do you have a reserve or emergency fund set aside? If your income stopped today, would you be able to still pay your monthly obligations? At least for a short time? I know many experts say 3 – 6 months is adequate. Personally, I like to have at least 12 months of emergency funds. Time goes by so fast, 3 months will be gone in the blink of an eye if you are not careful.
- Do you have the funds for a cash down payment on a mortgage? There are many mortgage products out there. 20% down is normal and avoids what’s called mortgage insurance but there products that can get you into a home for 10% down, 5% down, even 0% down for certain consumers. You have options but 20% means a smaller mortgage payment and the best terms in most cases.
- Are you planning to hold the home or condo for the short term or long term? Real estate cycles and nobody knows when. If we did, we would all be rich. If you think you need to move in 2 years, do not plan on your home appreciating 10% and then selling for a profit. The market can turn up or turn down. If 2 years goes by and your home is worth 10% less, are you still willing to sell and eat the loss? Or hold it and self-manage the properties with renters? Hire a property manager at 10% of monthly income per month? Many unplanned scenario’s to consider.
If you answered “no” to any of those questions above, maybe its better to put your home-ownership plans on hold until it’s a yes across the board. In my opinion, do not buy a home until you are financially ready. Period.
So let’s say that was a firm “yes” to all those questions above. Lets take a look at the pros and the cons of buying a home.
Pro #1 is going to be every payment brings you closer to owning the house. Your rent payments go to your landlord and are gone forever. You are on the path to full ownership. Think 30 years but there are may tricks and strategies to speed that process up considerably.
Pro #2 is that your home will appreciate meaning you can cash in on those returns. If you buy it for $550,000 and you end up selling it for $850,000, that extra $350,000 is cash in your pocket (minus selling fess, taxes, and other associated closing fees you might incur).
Pro #3 is the tax advantages that go along with owning a home. Property taxes and mortgage interest are deductible.
Pro #4 is you can do whatever you want top your home (HOA and spouse permitting of course). It’s yours to do with as you please. No annoying landlord or property manager to beg permission from. Just imagine and then do. It’s your world.
Pro #5 is you are part of the American dream. There is an amazing sense of freedom and pride that comes with owning your home. Trust me, it’s a thing.
I think the con list is -pretty short but listen up and watch, it might not be for you:
Con #1 is you are going to have more expenses. The taxes associated and the insurance cost. Also, some homes and condos will have association or HOA dues that can be significant. Something to consider.
Con #2 is as simple as if it breaks, you fix it. There is no maintenance person to call, a landlord to notify. If it goes bad, it’s your responsibility.
The next logical question here I think you might be asking is does it make sense to rent instead of buy. To be clear, renting is not a waste of money as some would say. For rent, you get a roof over your head and shelter. I don’t care what anyone says, there is major value in that. You have to live somewhere.
Here are a couple scenarios were it might make sense to rent instead:
Maybe you are paying down your debt. You absolutely want to be a homeowner but you want to get that student loan paid off first. Maybe knock out that American express balance or that massive visa card balance. A pro tip here is find somewhere to pay a little less rent maybe than you can afford and motor thru that debt that much faster.
Maybe you have a job that relocates you more often than not. If the prospect of having an investment property in another city or state doesn’t excite you, maybe the best choice is to keep on renting until things become a little more permanent. You don’t want to find yourself in that situation I mentioned earlier selling for less your home for less than you paid for it.
Maybe you just need a little more time. I am all about strategy and planning so if you need time to get your ducks in a row, by all means take it. Don’t feel guilty about renting until you have a solid plan.
If you find yourself in a scenario where renting might be the best decision for at least the current time being, its not all bad. Here are some pros to consider:
You can move so easily and frequently. Thinking a change from the city to the country might do you some good, no problem. Maybe you need a little more space, at least temporarily, no problem. It’s not terribly to see a lease through or even get out of a lease in some situations.
Repairs and maintenance are not your problem. Roof springs a leak, maybe the handle breaks on the bathroom faucet? No problem. Call maintenance or the landlord and that’s done and done. Not the case when you own your home.
Don’t forget, if you rent those rents can and will continue to go up. You can never truly make changes and renovations to your home that suit your personality and style without someone else’s permission, and you don’t have any financial incentives like tax deductions.
All in, owning probably seems more expensive up front but when you look at the long term picture, owning your own property financially crushes renting. It’s a reliable and proven method to increase you and your families net wealth. Just imagine how it would feel once you paid off your mortgage or home. No monthly rent or mortgage payments. I cannot wait personally.
That’s my take on whether to buy or rent a home, at least here in San Diego. I think you will find those principles will apply if you are in San Diego or any market for that matter.
Don’t forget, hit me up anytime if you have any questions about San Diego or I can help you with your move to, from, or within San Diego.