Deciding on Renting or Buying a Home

There are definitely many considerations consumers should make when deciding whether to rent or own, but the most important has to be “opportunity cost”. Individuals need to consider the opportunity cost of remaining in a lower priced rental as opposed to owning an asset, albeit one with much more associated expenses. It’s a decision consumer have been going up against for quite a while and it’s more relevant now than ever since it’s become more and more difficult to own a home with current home prices.

I think many consumers today (especially Gen Z and even some Millennials) do not take the same viewpoint on home owning as generations past. And in all honesty, they aren’t entirely wrong for doing so. Yes, a home is an asset and home ownership is still a great thing to strive for, but a home is also a significant liability. It’s become a lot more difficult to own a home where even if that is your main goal, it’s happening 10 years later for consumers than it used be 25 years ago. The average age of a first-time homebuyer has increased 10 years in the past 25 years alone. Homebuyers are not acquiring their first home until their mid 30s.

So What’s the Better Option?

The way I would frame this question for any potential consumers looking to move from renting to owning is this: Does the cost of owning a home utilize so much of your available resources and cashflow that it would make more sense to just invest in the stock market or buy a rental property with the funds used for a home down payment?

As far as considerations go: Potential homebuyers really need to assess their finances and make sure that their Debt to Income parameters are within a reasonable rate of margin. You do not want to take on the responsibility of becoming a home owner if you see a decent probability that your income and financial security could change in the future. Moreover, you should always look to have at least a 20% down payment so that you are starting off at a great LTV and can avoid paying PMI.

Look Towards the Future

Finally, before spending all the time to buy and ultimately purchase the home, ask yourself where you see yourself in 5 years? 10 years? Do you like the neighborhood, city, environment, etc? Do you think you may move locations due to your employment at any time in the future? Do you have established roots in the community and family close by?

If you have a 20% down payment and are ready to start building a family in the neighborhood then this is definitely a move you should consider making.

These are always valid questions to consider before pulling the trigger on buying a home. Otherwise, it really may be best to purchase a rental property or invest via other avenues.