Rent Prices are on the Rise – Should You Rent or Should You Own?

Rent Prices are on the Rise - Should You Rent or Should You Own?

This great graph comes from Calculated Risk.  It is yet another confirmation that rental vacancy rates are plummeting so we can expect rental prices to be on the rise.

I wrote before that roughly 10 million more individuals will be renting in the next 5 years as more people lose their homes and become renters.

So what does all this mean to you? As a landlord, your monthly rental amounts will increase; as a seller it will be more difficult to find a buyer as many people now have a fear of homeownership; as a buyer you should continue to find discounted prices because there are fewer of you out there; as a tenant well, sorry, but rents are going up.

So, should you buy or should you rent?

I was out to lunch with a friend this week and she asked if it is really necessary for her grown children to buy rather than rent. “Is it really that bad for them to rent?”  Like all stunning answers, I began with, “It depends.”

Do you qualify to buy?  Do you have a down payment? Is your credit score high enough?  (The higher your score, the lower your interest rate and, therefore, your monthly payment.) What other expenses do you have – cars, boats, credit cards?   Are you planning to stay in one area long enough to acquire equity for when you’re ready to resell?

What is your income, your tax bracket?  One of the advantages of owning is that owners can realize large tax breaks for property taxes and tax deductions for mortgage interest. Most of your monthly payment goes toward interest on your loan and those interest payments are deductible. That deduction greatly reduces the net amount you are actually paying every month to live in the home you are purchasing.

As a tenant, you don’t have to worry about things like how long you plan to stay in the home; are you up for a job transfer; how likely is it that you could be laid off?   To be able to resell a home without losing money, you should be able to stay there at least 3 years.

Then you’ll need to be aware of some of the costs of owning a home. What are the property taxes? There will be maintenance costs, insurance costs, possibly homeowner’s dues. If the new home will be larger than where you are now, remember, your utility costs will go up.

In reality, a home is like any other investment. Over time you hope it will appreciate and be worth more when you sell. Historically, residential real estate has proven to be an asset which appreciates over the long term meaning you should see appreciation that will help build your personal wealth.

To help you decide, should you rent or should you own, start by using this Buying vs. Renting calculator. Plug in your numbers and look at the difference in what you will spend now, what you will end up with at the end of this tax year, and what you will have 10 years from now.

What did you decide?

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2 Comments

  1. Terry:

    Thank you so much for writing!

    You’re right, real estate will not appreciate for some time. I expect the depressed market to continue for another 3-5 years. But, yes, it does go up, just like the cost of living. You can’t get for $1000 what you could get for $1000 10 years ago – I wish you could! So, values continue to increase.

    Actually, anyone can make money in real estate, if they invest properly. To just go out and buy and sell would be dangerous without some skill and training unless you plan to live in the property. This is why we offer coaching and training and our students are, also, quite successful!

    What do you invest in?

  2. Karen, you hit most of the “notes”, but fall short when you try to hold on to the old belief that real estate will appreciate over time. Ok, ok, over a long, long time, but certainly not in any near time. Our housing crisis took away – hopefully – a blind belief in housing as an investment. Ok, ok, I know you are doing well, and I’m happy for you. The fact is you are not typical, and not everybody can wear your shoes.

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