Renting versus buying (Real Estate)

[ddobson]

If you ask me, the biggest factor depends on your long-term plans.

Buying almost always works better if you plan to be in the house for five years or more, because you build up equity much faster in the later years of the loan (unless you're making extra payments toward principal, always a good idea because interest dominates the payment structure in the early years.) If you sell the house at a later date, you've got some savings built up in terms of equity that goes back into your pocket plus any market appreciation that's occurred in the meanwhile. And if you succeed in paying off your house, you actually find yourself in a position of paying NO rent at all. (Just property taxes, insurance, upkeep, etc.)

On the other hand, if you're not sure about long-term plans, renting may be the wiser option. You're not gaining anything financially in the short or long term (rent usually exceeds an appropriate payment on the same property, or there would be no properties available for rent! The exception might be where the landlord has owned the property for a long time and it's paid for.) But you're also not tied down to anything but maybe a lease agreement. In the US real estate prices are stalling and falling in some areas as the market has been overheated in recent years, so some people who bought recently are finding they owe more than the house may be worth. People with poor or limited credit history may also find they need to rent for a while until they can establish enough of one to get a better interest rate on a home loan.

So I'd say -- if you're planning to stay for a while, look at buying. It's a good time to do so right now, at least in the US. And if you're not, rent until you make up your mind.