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Renting is better if you job hop or are switching to some more permanent job, or not sure how soon you may be relocating. Houses are too expensive to buy/sell with all the agent and other fees involved. On the other hand, if you’re going to be there several years, expect annual rent increases in your budget.
I haven’t rented a home since the 1970s. However, as I age, I am beginning to see the possible value of renting again in my final years. There are three reasons that jump out at me. First, home maintenance becomes more burdensome with age – both the age of the home and your own age. Each little daily chore gets a little harder over time. In particular, it gets harder each year to do yard maintenance and keep up with significant home repairs. Second, you just don’t need as much space as you used to, especially if you are willing to get rid of what you don’t (or won’t) ever use any more. Third, selling a home and moving will become even more intimidating as you age. Even worse, it is one of the biggest burdens for your executor, since he or she is the one who will have to do the repairs, dress it up, and go through the sale process. It also usually delays estate settlement.
However, renting demands a couple of things: a good apartment, a good landlord, a good community, a promise of fairly stable rents, and hopefully some good neighbors.
When you like a small home, like calling the office instead of trying to find a plumber, have no desire to garden, are satisfied with shared grills and common spaces, and realize that you are not accumulating the forced savings of a mortgage so you’d best increase your retirement savings to compensate.
I wouldn’t get in a hurry to buy a house until I became familiar with the community and neighborhood and gained some clarity that I wanted to settle there for at least a few years. I think of moving as difficult, disruptive, and expensive. All of that ramps up even more when moving out of a home you own, so I don’t want to buy a home unless I plan to stay a while.
The transaction costs of buying or selling a home are quite high. For that reason, I’ve been told not to buy unless you could reasonably foresee living there for seven years.
We rented homes in Florida, for example, because we were just passing though. We lived in three places inside of five years.
We bought our first house in Takoma Park, Maryland because we wanted to live there for years and raise our family there.
My older brother moved to Baton Rouge, LA in the mid-80s. The local economy was heavy dependent on the oil business, which was depressed at the time. There were numerous news townhome communities with lots of vacancies. He lived there for 4 years, and was able to rent a nice townhouse for the time he was there. With lots of vacancies, and no real desire to pack up and move, he was able to negotiate a lower rent several times.
A few of his coworkers saw the opportunity to purchase homes at low prices. It was a buyers market, so they bought with 0 down. Unfortunately, house prices kept going down locally and several people ended up underwater when they chose to move for career reasons.
I saw a similar phenomena in the Washington DC area in the wake of the 2007 crisis. Nice suburban single and townhomes sold for way under the previous high purchase prices, and less than the mortgage owed.
If you are a transient to an area, perhaps moving somewhere for a few years as a career step, it may be wise to consider if it makes sense to invest in a home. This is especially true if you are younger, and moving to an area with lots of variation in home prices. I spent a lot of my career traveling to the Silicon Valley region. Home prices there tended to swing much greater than the east coast where I lived. If you caught it at the bottom you could make out well.
I chose to be a renter following my divorce. I was 45 years old and hadn’t lived on my own for over two decades. I didn’t have a clear picture of how my finances would hold up on a single income. I didn’t want to buy a home only to find out I couldn’t afford it.
Because I chose to live in a moderately priced apartment, I ended up having more than enough money to cover all of my living expenses. I began contributing increasingly larger sums of money to my retirement accounts. After living as a renter for six years, I was able to afford the purchase of a small ‘starter’ home which I sold just four years later for a large profit.
Those six years as a renter allowed me to get a solid financial foundation built.