Rent or Own?

[ValleyofVision]

Good afternoon everyone,

In a few months my wife and I will be moving to North Carolina for a job offer. As of right now, we are renting from my father in a small apartment. We are debating if we should rent or own when we move. Could you share some reasons of why you do either? If you rent, what are the benefits/disadvantages and same with owning.

Look forward to hearing!

 

[Edward]

1) Depends on the market. Coming off the S&L crisis in Texas, my wife and I were able to do much better (much more house for the money) buying rather than renting. Now, in this market, with a lot of transfers in, it might make more sense for a newcomer to rent rather than buy in the same area. Compare what you could get with the same monthly outlay. Owning will come with more incidental expenses, but that is offset by building equity.

2) Depends on how long you expect to be there. Normal rule of thumb is under 7 years renting makes more sense than buying. Over 7 years, appreciation is likely (absent a bubble) to offset the costs and commissions of buying and selling.

Note: some of the benefits of home ownership can be lost if you buy in a neighborhood with a mandatory Homeowner's Association.

Advantages of owning
Tax benefit
Put holes in the walls wherever and whenever you want
Paint whatever color you want

Disadvantage of owning
Maintenance costs and hassles
Down payment

 

[chuckd]

Renting advantages:
-no responsibility: repairs done by landlord, no mortgage (job loss, move, etc)
-free to move if you want: much easier to break a lease than sell a house

Renting disadvantages:
-limited on what you can do to make it 'your home.'
-subject to landlord
-at the end of 30 years of renting, you still don't own a house

Buying advantages:
-call it your home, do the things you want to it
-can write off some of the below disadvantages from your income tax (not sure if that's an advantage)
-forced "savings" - you'll own it after 30 years

Buying disadvantages:
-property tax, mortgage interest, insurance down the drain
-responsible for repairs (how handy are you?)
-responsible for mortgage (what if you lose your job?)
-less free: what if you want to move again and the real estate market isn't doing too well? It could take 6 months or so to sell your house.

If you're young, rent. If you have kids and this is where you see yourself for 10+ years, consider buying. Probably should rent for 6 months or so anyway to get to know the area.

 

[Semper Fidelis]

1) Depends on the market. Coming off the S&L crisis in Texas, my wife and I were able to do much better (much more house for the money) buying rather than renting. Now, in this market, with a lot of transfers in, it might make more sense for a newcomer to rent rather than buy in the same area. Compare what you could get with the same monthly outlay. Owning will come with more incidental expenses, but that is offset by building equity.

2) Depends on how long you expect to be there. Normal rule of thumb is under 7 years renting makes more sense than buying. Over 7 years, appreciation is likely (absent a bubble) to offset the costs and commissions of buying and selling.

Note: some of the benefits of home ownership can be lost if you buy in a neighborhood with a mandatory Homeowner's Association.

Advantages of owning
Tax benefit
Put holes in the walls wherever and whenever you want
Paint whatever color you want

Disadvantage of owning
Maintenance costs and hassles
Down payment

Great advice.

Many parts of North Carolina have very affordable homes and interest rates are low but, conversely, if you move and try to sell you may find it difficult to sell or even rent the house out while you're waiting to sell. You really have to budget quite a bit to maintain a house (and that includes when you rent out a house if you decide to buy one).

 

[Edward]

Probably should rent for 6 months or so anyway to get to know the area.

Great point.

====

Another factor with buying - schools. Even if you don't plan to avail yourselves of public schools, being in a decent school district can facilitate sales when you want to move. I learned that the hard way. (Quick cheat sheet is to look at the percentage of students that qualify for free lunches) http://www.greatschools.org/ (Scroll down on "Details" tab for individual local schools).

 

[RamistThomist]

Not immediately at stake, but:

1) Do you plan to take out a 15 yr or 30 yr mortgage?
2) Interest rates

 

[TexanRose]

Really depends on your market. In my neighborhood, renting a 3-bedroom 2-bath house will cost 50% more per month than buying that same house. It really makes so much more sense to buy...which is probably why houses are selling really quickly, like within a matter of days.

Another factor to consider: rents go up. Fixed interest rate mortgages don't (though the taxes and insurance might).

 

[C. Matthew McMahon]

My wife and I wish we had the maintenance payments and rent we spent on our condo when we lived in FL. I can tell you, over 16 years living there, it was almost enough to buy a moderately sized house in TN.

If you plan on moving, or don't know if you are staying wherever you are going, then rent for a year. After that, if you stay, buy. I don't know of a situation where renting is better than owning equity. Having rented twice and bought three times, I would buy every time if I know it is even relatively permanent.

I was speaking to a friend last week, and while he was watching his landscapers mow the yard for him, he asked me who my lawn guy was. I said, "You're talking to him." Overall, if your bought house in relatively in good shape, then you don't have to throw away money with the idea that the owner of the place you rent will pay for your fixes (trust me, he's making money on your as a renter on every possible fix that occurs.). Even in our condo we has assessments that came around, on top of maintenance payments. If owners of places they rent lost money, and didn't make money, they wouldn't do it.

The amount of money I use to maintain my current house is quite little. And don't be afraid of maintaining your house if you buy. Even if you know nothing, you have YouTube. I can't tell you how many projects I did with using the guides you can find there. Dozens.

Lord willing, I'll never rent anything again in that way.

 

[ValleyofVision]

Thanks for all the replies! Very helpful in transition.

 

[zsmcd]

I would buy every time if I know it is even relatively permanent.

I have heard this from many folks but have heard "permanent" defined differently. I have heard some say that you should planning to stay for three years, some five and some seven. What is the reasoning behind these time lengths?

In my experience, as Sharon pointed out, the monthly rent for a 3br 2ba apartment is entirely more expensive than a mortgage on a house the same size.

 

[Edward]

What is the reasoning behind these time lengths?

Appreciation in value of asset sufficient to cover the costs associated with buying and selling. Only way 2 years would work is if you buy following a bubble popping. Most areas that got hit 2008-2010 have probably recovered.

You haven't said what part of North Carolina you are moving to. If it is around Asheville, there may still be some upside opportunity in Henderson County. I haven't kept up with that area in the last few years to see how it has recovered.

 

[ValleyofVision]

We will be moving near Greensboro

 

[arapahoepark]

Dave Ramsey says that over the long haul you'd spend 38% more renting than buying due to inflation. And we all know wages don't keep up the pace.

 

[Edward]

We will be moving near Greensboro

I'm not familiar with market conditions in the Triad, so I can't give specific advice.
Zillow can be a helpful resource. http://www.zillow.com/ and I've already provided a link to Great Schools.

I will point out that generally, bankers and realtors will try to get you to buy more house than is prudent.

 

[ValleyofVision]

Right. We have it a little easy here in Virginia from renting from my father, so that's why we are searching for benefits/disadvantages for both.

If we choose to rent, we'd hope to find a house that we could continually lease so we wouldn't have to pack up and move all again. With owning, we hope to find something that we can afford and within range. Tough decision!

 

[Edward]

Well, unbudgeted maintenance costs can be a true negative to ownership. I'll spend about $600 this week on AC repairs - not something that routine maintenance would have prevented. Figure a big ticket item every 5 years or so. (Waterheater, furnace, dishwasher, AC on a rotating basis). Carpet every 10 to 20 years; You will probably need to buy a refrigerator when you buy the house, but that should last a lifetime (I have 2 - one that is 30 years old, and one that is 60) but if you get one with an icemaker, figure 5 year cycle on that unit.

 

[Toasty]

Good afternoon everyone,

In a few months my wife and I will be moving to North Carolina for a job offer. As of right now, we are renting from my father in a small apartment. We are debating if we should rent or own when we move. Could you share some reasons of why you do either? If you rent, what are the benefits/disadvantages and same with owning.

Look forward to hearing!

If paying rent costs more money than making house payments, then why not buy a house?

 

[RamistThomist]

And if you are going to buy, check out the geography where you live. Louisiana just had a once in a century flood, so choose high ground. The foundation shifted in my house because of the ground, so that was a big expense.