Should You Buy or Rent?

Posted by Phil Boren on Friday, February 5th, 2016 at 1:54pm.

buying vs rentingHow do you know if it's financially better to rent or buy a home in Northern California? Buying a home is likely the largest investment you'll ever make and giving a 20% down payment on a home can be a scary thought. Don't fret ... read our things to consider when deciding between buying a house vs. renting.

Renting

It may surprise you, but sometimes buying isn't the best financial option for people. Often, renting a home will be less expensive monthly than buying a home – even for a similar size and quality property in the same community. This is because renters aren't responsible for property taxes, insurance and maintenance costs. Landlords may hide these fees in the monthly rent, but landlords are still responsible for any unforeseen maintenance and repairs.

Although renters don't end up with the asset of a home, they could potentially use their savings for a different investment (e.g. stock market).But it's impossible to determine which investment will be more lucrative.

Additionally, renting a home provides tenants with more flexibility. If you need to move across the country for a job, for example, you don't need to worry about selling your home at the right time for a better return on investment. You can simply end your tenancy agreement and leave.

Lastly, if you rent for a while, you might be able to save up for a larger down payment for when you do choose to eventually buy a home. A larger down payment will provide you with a lower monthly mortgage and essentially more financial flexibility.

Buying

Buying a home is often viewed as a necessary step in a prosperous life. Many first-time homebuyers get excited thinking about the freedom they have to decorate and paint the home as they wish. However, there are a lot more benefits to buying a home than making interior decorating decisions.

When you buy a home, you're no longer paying someone else's mortgage. You are basically adding equity to your own bank account rather than your landlord's account. Furthermore, when the home is paid off, owners are left with a large financial asset. Homes often appreciate in value, particularly in Northern California. And buying a property provides you with a fixed mortgage rate, protecting you from ever having your rent increased.

With your home ownership comes a mortgage, mortgage interest payments and property taxes. Don't let the interest payments and property taxes deter you – they are usually tax deductible. If you're looking to buy, try to find the best mortgage rate available. If you can't find a decent rate, wait to buy until you do.

When you own a home, you're accruing equity with each mortgage payment. If you stay in your residence for approximately 7-8 years, you're likely to offset the costs of purchasing the home. Furthermore, if the equity in your home grows to more than a 20-80 percent loan to value ratio, you can borrow against the equity for large purchases (e.g. College tuition or second home).

Finally, an excellent option for buyers is finding a home that will bring in an additional rental income, such as a basement suite. This option is really beneficial because you have an additional income adding equity to your home at a faster rate.

Speak with your real estate agent to decide whether buying or renting a home is better for you. Look at the current market trends and evaluate your financial status. And if you decide to buy, find a home you'll want to stay in for at least 5-7 years. It doesn't have to be your dream property – you can always buy that down the road. Look at your future plans, whether you'd like to grow your family in the next few years or downsize to a low-maintenance residence, and decide what property type is right for you.

Do you have any other reasons to buy vs. sell a home? Comment below and let us know your thoughts!

Contact RE/MAX Gold today to learn more about buying a home in Northern California. Or call us directly at 916-960-8895.


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Phil Boren
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