When to rent over buy? Does Renting ever make financial sense?
Home ownership is the single best way in which the average person can create wealth in this country, so we at Hatch Homes are always interested in making a plan for our clients to own a home. However, there are times when renting makes the most sense.
Compelling reasons to rent instead of buy:
If you’re only in the area temporarily for a couple of years
For instance for a job, it may not make sense to buy. If you sell before you’ve owned the place for two years you will have to pay capital gains and your home will not have appreciated that much, so it may be better to rent.
If you don’t know the area very well
If you’re new to the area and you don’t know what neighborhood you’re interested in living in you may want to rent in order to get to know a neighborhood before buying. Short-term rentals, such as AirBnBs can also be great options for scoping out various neighborhoods before purchasing so that you don’t end up regretting where you buy.
If you don’t yet qualify for a loan
If you cannot obtain a loan, you’ll have to rent. However, we strongly encourage you to talk with a lender if you’re interested in owning, even if you think it’s unrealistic. A good lender will set you up on a path toward homeownership, even if it will take a while, and if you’re renting only because you don’t know how to qualify for a loan, getting someone to work with you on credit repair etc. can help you move toward homeownership.
Lifestyle over Finances
If lifestyle is more important than investment. If you want to live in a coveted neighborhood or close to popular amenities, you may realistically not be able to afford a house in that area, but you could potentially afford to rent.
Good Rental Situation
If you have a unique rental situation where you are renting from someone you know or are related to and they are not charging you market value. If you’re paying less per month to rent on what you would pay toward a mortgage payment and you can guarantee your rent won’t increase, this could be a good situation. You could also use that situation to save money toward your down payment.
Rent while you search
If you already own a home but you want to move up in your investment, you can rent out your property and then you can rent a place. Your property becomes income that can count toward qualifying for a mortgage for your purchase in the next level of price.
Of course, renting also has many drawbacks…SO many we don’t feel that we have to list them all.
If renting makes sense for you right now, that’s great. But make sure you have a plan in place to move from renting to owning when it makes sense for you to do so. We can help!