Over 4 years ago my wife and I made some significant sacrifices in order to begin working towards our debt free dream. We decided that we would need to make some drastic changes in order to really jump start this process. We both have the goal of being able to live intentionally and freely so we decided the first step in this process was eliminating our debt. Before I go any further I want to provide a disclaimer, we are still working towards paying off our debt so our journey is not complete.
The first and probably hardest thing we did was sell our house, or attempt to sell our house. When we bought this home we legitimately thought this would be our forever home. The size of the house was enough for our kids to eventually, bring their kids and we would have all been comfortable. Imagine the first Home Alone scene when the entire McCallister family is eating pizza, right before Kevin apparently ruins everything by defending the fact that Buzz doesn’t save him any cheese pizza. That was what we imagined when we purchased this home, minus the spilled milk and uncle calling one of my kids a little jerk. So, as you can imagine letting this house go was not the easiest of task.
The key word in the selling our house story was “attempted”. We put our house on the market expecting it to sell fairly quickly. Based on the comps in the neighborhood and the availability of a home like ours we were pretty confident selling it would not be a problem. Boy were we wrong. Contrary to what we thought, our house sat on the market for over a year as we fell further and further into debt. Ok, enough of the somber woe is me tone. Long story short, we were eventually force to close via short sell and that had a significant negatively impacted our credit.
There were 2 reasons we felt we needed to make these sacrifices, the first was to put our family in a position to be successful moving forward without the debt and the second was to put our kids in a better educational system. With this one move we would accomplish both, but of course there are sacrifices. In order to get into the better school system, we had to downsize. So we took our fairly large family and crammed it into a significantly smaller home. In this situation we did not have any leverage because the short sale took away our buying power. so we were forced to rent. That all leads me into the real reason for this post.
To Buy or To Rent, that is the question:
As we are nearly back in a position to have purchasing power I began to contemplate which option is better. We currently rent but are looking to buy, because that is what you are supposed to do right? That is the American dream, to own your own home!
I have decided to look at some important factors to consider when determining which is best for you. Here are my top five:
There is something about having flexibility that makes renting a very appealing option. I would be lying to you if I said that I loved being tied to my house that just wouldn’t sell. When we purchased the home we were not expecting to need any flexibility. We made the assumption that this was the house we wanted to be in for the rest of our lives. Never considering that life may not be directly aligned with our personal plan. So there we were stuck between a house and a hard place!
I liken this entire thought to the new power positions NBA players hold. In years past the team had all the leverage. The players would just about kill to get a long term deal and secure their financial future. In today’s NBA you see a multitude of two to three year deals so that each superstar can have the flexibility to evaluate whether their respective team is the right fit for them moving forward. That would be a great option to have in the housing market. Can you imagine going to the mortgage company and telling them you plan to sign a three-year mortgage with a fourth year home owner option? And if things go well I may sign a long term deal to stay in this house till retirement. For this reason alone, I completely understand the renting allure.
Renting, versus buying, affords you the ability to move freely as you wish. If you decide at the end of the terms of your lease, that you are less satisfied with the location, the schools or the home itself, you have the flexibility to cut ties completely and move onto greener pastures.
If money was no object would you still rent? In my experience I have found that I can get more bang for my buck by renting. What I mean by that is I can rent a place in the neighborhood I want, with the options I want faster than I can buy the same thing. This is not meaning I wouldn’t pay a pretty penny in order to have that high rise downtown apartment, it simply means I can afford the rent much faster than I could convince a mortgage company to approve me for the same place. Anyone who has watched any home buying show on HGTV where they go from renting to buying, the common theme is they had more house when they rented. The realtor always gives the same commentary. “I am not sure if they understand that they have different desires. They will have to compromise on some of the items on their wish list in order to stay in this neighborhood or we may have to expand our search.”
This rule applies to everyone in every city across the country. So unless cost is no issue you have to make sacrifices. So once again I somewhat understand why people rent long term.
One factor I failed to mention in the cost was, that in most cases you can have a cheaper mortgage because you are willing to sacrifice something from that stellar pad you were renting. So you end up paying much less for your mortgage even though you may not have all the bells and whistles, but that doesn’t bother you as much because it is actually yours to keep.
We as a society have commitmentphobia! We are so afraid to commit to anything long term because we may miss out on the next best thing. This causes us to spend our time looking for things that we can commit to, for the short term. It is a great feeling knowing you can have a change of scenery after a few years if you so choose. There is also something very comforting about knowing you have secured your residence for 15 or 30 years. The money spent doesn’t change. You will still have to pay either rent or a mortgage so the decision really becomes, how long do I plan to stay here?
It is less likely that your mortgage keeps increasing because the market value in the area is steadily rising, hence the 15 or 30 year fixed plan. With the consistent revitalization of cities across the country, you may find yourself priced out of your rental property at the end of your lease. If you read the fine print on your lease, I am sure you will find the verbiage that states something like; we reserve the right to increase the rent based on fair market value, blah, blah, blah. You get the point! In most cases this same verbiage does not work in reverse if you find that the market value is decreasing in your area, but that is a topic for another day. So the term length can work in your favor in either case while renting. Market value goes up, find a new place in your budget when your lease is over. Market value goes down, find a place in an area that better meets your needs. Rinse and repeat!
Most renters, today want the ability to be free. They want to live a fun and exciting life that does not require them to stress about unnecessary things. As someone who has been on both sides of the fence, I will admit that having the ability to call a landlord and say, my dishwasher is broken, or hey there is a leak in the roof, Whew, man is that nice. I never really appreciated having that get out of jail free card until I was a home owner and I realized I had to pay for EVERYTHING, and I mean EVERYTHING! The sense of freedom you feel knowing that someone else is responsible for all of the maintenance and upkeep and the only thing you have to do is live there is indescribable but also has its drawbacks.
Customization is one of the great attributes to buying a home. You can paint the walls any color you want, you can tear down any walls you want (non-load bearing that is), you can rip up floors and carpet, or you can just leave it all alone, but it’s your choice! Renting only really allows you to keep those eggshell white walls and choppy boxed layout because you don’t have the authority to make any major changes. So which is better?
Let’s get to the dollars and cents of it all. Credit, credit, credit! That is what it is all about right? Putting yourself in a financial position for long term success? One of the biggest issues I always have trouble wrapping my head around while renting, is the fact that when I leave I am in the same exact position as when I signed the lease. You can never “own” a part of the property you are leasing. You can never cash in on the fact that you have been a faithful tenant. You can never borrow against your apartment if there is some financial emergency. My credit is not improving while I am renting, so in order to eventually purchase a home, I you have to save as much money as possible to show the creditors that I have a hefty down payment and that they can trust that I am worthy of a mortgage. So in that respect leasing/renting is not so great! When you buy your home, you have the opportunity to build equity. When you build this equity you are setting yourself up for some great opportunities in the future. At the most fundamental level you are at least setting yourself up to be able walk away with a decent amount of money if you decide to sell.
What does it all mean???
In reality this is a personal choice and one that can lead to some very heated debates. There are people who have no desire to ever purchase a home. They would rather have the freedom to call someone when something breaks, than be responsible for any of it themselves. And on the other end of the spectrum you have people that hate the idea of renting. They see renting as giving away money they could be using as more of an investment in their property and an investment into their lives.
We are on the buying side of the fence at this point in our life. Personally I like the thought of long term stability and having something that we can call ours. I want to have a forever home that my kids can eventually bring their kids to (this is a long way out, no rush at all). I can appreciate some of the things that you gain from renting but honestly, I will never understand the allure of renting for your entire life. Ownership is the way for me and my family! Maybe we are control freaks and like to be able to change whatever we want. Maybe we like to control our own fate and choose what work gets done. I am not sure which reason I would say is the biggest reason that we are buyers. I am just certain that as soon as the time is right we plan to get off this renter’s gerbil wheel!
And just think 30 years (or less) from now, I won’t have to pay another rent payment. The mortgage will be paid off and the only expectation will be property taxes. I’d be happy to use that extra couple thousand dollars how I see fit. Based on what makes us smile, we will probably travel the world!
What are your thoughts? To Buy or To Rent, what’s the better option?