Source: Thomas R Machnitzki. Republished under CC BY 3.0.
There are numerous factors that can influence your decision whether to rent or buy a home. Some of those factors are financial, but many are not -- and all will depend on each individual's circumstances. We asked five of our analysts to explain what motivated their personal choices, and their answers reveal the pros and cons of both options.
Alex Dumortier (Own)
I own, and there are quite a few reasons behind that choice, so I'll just mention a few.
Financial: You should primarily think of a house purchase as the acquisition of a home, rather than as an investment, but that doesn't exclude the possibility of making intelligent financial decisions that can help you build wealth. As an asset, a home has some very attractive characteristics.
For one, it's probably the only asset purchase you will ever make in which significant leverage is not only possible, but advisable (if you make a standard 20% down payment on the property, your leverage is five-to-one).
Another benefit of a home mortgage is the tax-deductibility of interest payments, which is an enormous subsidy.
Social: For men and women who are single and who are looking for a spouse/ life partner, then owning a home sends a certain message. If you tell a potential mate that you own your home, then there's a reassuring subtext: "I'm settled and responsible enough to carry a mortgage." (And if you were a cash buyer, all the better!)
In my experience, the question "Do you rent or own?" comes up very frequently in that type of situation -- I think that's hardly coincidental.
Jordan Wathen (Rent)
While I respect the choice to buy a home, I'm not sure it's for everyone. In particular, people who aren't sold on a particular place to live will likely find renting to be financially advantageous.
Many aspiring homeowners look only at their monthly rent versus their potential mortgage payment, but the true cost of home ownership is much higher, particularly for people who move often. Buying a home results in a number of transaction-related expenses like closing costs, inspection and appraisal fees, agent commissions (should you hire an agent), and origination fees on a new mortgage. The more often you move, the more often you'll encounter these expenses, which can be significant compared to a home's total purchase price.
Matt Frankel (Own)
As Jordan correctly pointed out, owning a home only makes financial sense if you plan to stay in the home for a long period of time. And there are many valid financial reasons to own -- building equity over time, locking in the same housing payment for 30 years, and so on.
The financial benefits of ownership certainly influenced my decision to own, rather than rent. For starters, in my area (Columbia, South Carolina), home prices are relatively cheap, and houses with the yard space we need, in the school district we want to live in, would cost significantly more to rent than to buy -- especially with the record-low mortgage rates available.
However, our reasons for owning our home go beyond the financial considerations. I love being able to make modifications to my house as I see fit and really make it "ours." And buying a home gave us much more control over our physical location, as rental houses are virtually non-existent in our neighborhood. We also have two dogs, which any pet owner knows can limit your options in terms of rental housing.
We're not planning on going anywhere in the near future, so for my family, home ownership was a no-brainer for all of the reasons mentioned here.
Brian Stoffel (Rent)
My family of three is more than content to live in rented houses -- for now. The key driver behind our decision is that we live in my native Wisconsin for half of the year and in Costa Rica during the other half (I'm sure you can guess which half of the year we spend down South).
Living in rural Wisconsin, it would be very difficult to find renters to live in our Wisconsin house for six months at a time. We also aren't crazy about the idea of letting a stranger live with our stuff while we're gone. So instead of buying a nice house and making mortgage payments while we aren't there, we rent a modest house for a rate far below what our mortgage would be.
But there's a second reason behind our decision as well. After reading Nassim Taleb's Antifragile, we became hyper-aware of making any decisions that could make us financially fragile. Taking on a mortgage -- with a large down payment and a 30-year payment agreement -- is one of those decisions.
Incidentally, we've decided that building in Costa Rica is far more reasonable thing to do. A mortgage wouldn't be necessary, and the entire cost of building a house would be less than a down payment in the United States. Should tough economic times hit, we could move down there and live in our house for free.
Brian Feroldi (Own)
While I'm a huge fan of renting, and happily did so for many years, my wife and I decided to buy our first house in 2011, and we're happy with that decision. We were lucky enough to benefit from the big downturn in housing prices, and we ended up locking in a terrific interest rate on our 30-year mortgage.
Our reasons for doing so were not based on finances at all, as we would have been much better off financially if we had kept on renting for the last few years, as real estate taxes and surprise housing expenses certainly have a way of adding up. However, my wife and I both grew up in families that lived in the same house for decades, and we wanted to provide the same stability to our three children. Since we were super-picky about the location, size, school district, and distance to work, once we found our ideal place, we acted quickly, and we haven't regretted that decision at all.
Now that we're in the neighborhood where we want to live, in a town that puts us close to family, friends, the beach and the mountains, we are quite happy with our decision to purchase, and we plan to live here for years to come.
