This is a guest post from RJ Weiss, who is an aspiring financial planner. RJ writes about financial planning for twenty-somethings at Gen Y Wealth. If you like what you see here, please consider subscribing to his RSS feed.
Want to start a fight on a personal finance world? Just ask someone if it makes more sense to buy or rent a home. All of a sudden, you will have a debate like no other.
But should there really be a cut and dry answer to this question? Look at how many possible variables can go into this decision:
- Current state of overall housing market
- Current state of local housing market
- Cost of renting in your area
- Amount saved for a down payment
- Size of emergency fund
- Credit score
- The chances you will be fired from your job
- The chances you will have to relocate for your job
- The chances you want to change careers
- Your desire to move somewhere else
- Are you able to go from a two to one income household?
- Future earning ability
- Current interest rates
- Tax incentives
- Individual tax bracket
- Chances family outgrows house
- Handyman skills
- New appliances you will have to buy
- Quality of school districts
- Local property taxes
- Status of current debt (student loans, car payments)
- Risk tolerance
- Ability to save money
- Have you started saving for your kids college?
- A lot more, but you get the idea
My point is simply this: there is no right or wrong answer. There is no “rule of thumb” when it comes to buying vs. renting.
Why I bought a house at 24
The #1 reason that I chose to buy a house so young was because I wanted to own a house.
I didn’t buy a house because of the $8, 000 tax credit or for the mortgage tax deduction. Nor did I buy a house because I was tired of paying rent.
The decision came down to my personal preference of owning rather then renting my home.
Do it the right way
By no means did I rush out and buy a house in a rush the day I decided that I wanted to become a homeowner.
I was patient. I researched local markets extensively. I worked on improving my credit score. I saved enough to avoid paying PMI for longer than two years.
My then fiancee and I (eventually) found a house that we both loved and could afford. We moved in right after our wedding.
To buy or to rent?
If you are contemplating buying a home, great. However, if you’re making this decision because you think it will increase your net worth now or in the future, not so great. There are far better places to invest than in real estate.
The decision to buy a home isn’t going to improve your financial life. However, it does have the potential to improve the overall quality of your life.
It has mine.