Homeownership can be a smart financial move, but it's not the right decision for everyone. When you’re investing such a large amount of capital into a property, you should be sure it’s both a solid place to live and will hold its value for years to come.
If you're unsure whether you should take the leap into homeownership, there are a few key questions you'll want to ask yourself. To help you, the members of Forbes Real Estate Council shared some important things to consider when you're debating between buying and renting a home.
1. How Long Will I Live In That Location?
Costs are incurred in both buying and selling. If people are unsure as to how long they will reside in a location, it may be wiser to rent. If a potential relocation is on the horizon within a year or two, that would require selling the home to recoup funds and it may come at a loss. On the other hand, if liquidity is not an issue and the rental market is strong, then a long-term strategy might make sense. – Michael Daniels, Rentivity
2. Can I Keep Up With Payments And Maintenance?
While I am a firm believer in all of the benefits of homeownership, many factors need to be evaluated. Will you be living in the house for a minimum of five years? Are you financially capable of not only the down payment and the monthly payment, but all of the upkeep and maintenance? These questions need to be answered before you can make a solid decision on whether homeownership is right for you. – Scott Jelinek, Master Investor Academy
3. Have I Explored Emerging Innovative Options?
Have you explored all of your options? Renting is more affordable than buying a home in more than half of U.S. housing markets. Moreover, emerging rent-to-earn and other innovative options are coming to market that make ownership more accessible and renting more financially rewarding. – Calvin Cooper, Rhove
4. What Is The Interest Rate?
More and more Americans are renting single-family homes today and that is not a bad thing. It is OK to rent, but with interest rates so low, it is more prudent to buy a home. In today's market, you are not just buying a home. Instead, you are buying the rate at which you are getting the loan. That is the key to choosing whether you should buy or rent. – Alex Hemani, Alex Hemani Companies
5. Can I Afford The Unforeseen Costs Of Home Ownership?
If you are only going to ask yourself one thing, and one thing only, it should be, “Can I afford the cost of homeownership?” This assumes of course that you have the ability to buy a home in the first place. The beauty of renting is the ability to closely manage living expenses and avoid the unforeseen expenses that are inevitable with homeownership. – Robert Greenberg, Patch of Land
6. What Are My Financial Goals?
Traditional thinking dictates that buying a home is a major milestone toward the “American Dream.” In 2020, that dream is evolving. Many first-time homebuyers should take the first step of setting financial goals first. Buying a home may not be the right step for them. A home is not an investment vehicle. It is effectively a savings account you can live in that may increase in value. – Spencer Hilligoss, Madison Investing
7. What Is The Cost Five Years From Now?
One thing people forget is that rent will go up over time and a mortgage will usually stay about the same. Do not consider just what renting vs. buying will cost you today, but also what it will cost you five years down the road. By that time, rent will have most likely increased while you have been paying down your mortgage and your house will have most likely increased in value. – Mark Ferguson, InvestFourMore
8. Am I Ready To Sacrifice Flexibility?
The biggest perk renters enjoy is the freedom to move jobs, states or even countries as their lives shift. But renters no longer need to choose between flexibility and investing in their future. Technology has made it possible to decouple where you live from where you own. People can now purchase homes online in less expensive markets as investments while still living in a rental. – Gary Beasley, Roofstock
9. Do I Want To Stay In This City For The Next Five Years?
Millennials, many of whom will become homeowners within the next five years, are ambitious and often find themselves relocating because of their jobs. When considering a home purchase, ask yourself if your current position offers room for growth and enough stability within the next five to seven years. Are you expecting to continue to live in the same city for the next five years? – Rodolfo Delgado, Replay Listings
10. How Fast Are Property Values Increasing Year Over Year?
No matter how we look at it, once we get past all the emotional stuff, homeownership is an investment. And with any investment, you need to understand the potential risk and return on that investment. The one thing, in my professional opinion, is to understand the average year over year increase in property values in your desired market area. This could be the determining factor to buy vs. rent. – Bobby Bryant, Ask Doss
11. Is The Mortgage More Than 28% Of My Monthly Income?
Expect additional costs beyond the down payment, like mortgage fees, insurance, legal fees, etc. Run the numbers to see if you can afford the new home and don't buy if it's over 28% of your monthly income. Also, consider getting your real estate license! The average cost of earning your license is $500. The median home price as of May 2019 was $315,000. You can save the 3% commission rate on the purchase, which can save around $10,000. – Garratt Hasenstab, The Mountain Life Companies™
12. Can I Do Better With A Different Loan Product?
So many people assume a 30-year fixed mortgage is the smartest—or only—option, but there are several other loan products to weigh based on your personal situation. Educating yourself and running the numbers with a great lender is the best first step to decide if you’re ready to purchase a home. Be careful not to overleverage though and get yourself into a precarious financial position. – Jennifer Anderson, Anderson Coastal Group
13. Do I Want To Build A Portfolio?
When you buy a home, you sink a lot of money, intentionally or unintentionally, into it. You want it to be “you” through renovations and decorating. To me, it is not the best vehicle for wealth growth. It is more of a money pit. If you want to be wealthy and have time to build a portfolio (stocks, real estate, investments), I would always advise renting for a long while before buying a home. – Heidi Burkhart, Dane Real Estate
14. Am I Ready For Stability?
Price dominates the conversation now but it's not all quantitative. We all want a better life for ourselves and our families. Ownership brings stability. You don't have to worry about having to move next year because your lease is not renewed. You don't have to ask for approval to paint the kitchen that perfect shade of gray you saw on Pinterest. It's a home, not just a place you sleep. – Jason Hsiao, Shaw Investments