Here is something for everyone who is about to sign a lease and is thinking “should I be buying?” Unlike most Realtors® my answer is not, “Hell, yes! Right now! Hurry!”
The economic decision:
Owning: For most people, owning a house or condo involves paying down a mortgage, but never owning outright. In previous generations, it was expected that a “family home” was owned for more than 30 years, unless the family dispersed due to divorce or early death. The idea of owning smaller “starter” properties in order to take advantage of real estate appreciation is a fairly new phenomenon. It isn’t a good one for young property owners. Look at the difference time makes on this chart.
In many cases, living in a house or condo that you own for less than 10 years is more expensive than renting. And, you have all the responsibility and expense of maintaining and repairing the place. Also, buying for the short term assumes you are in the right part of the appreciation/correction cycle of real estate; you are counting on appreciation that may or may not be there. If the market is down at the time you want to sell, you may find yourself selling at a loss, or renting for less than you costs.
Renting: On the other hand, involves paying a monthly fee, but having limited responsibilities for the care of the house or condo. Economically speaking renting is the better solution for a short term commitment to a property (under 10 years.) However, you have limited control over the condition and repairs. You also have limited rights to change things you don’t like. Look how renting cost is much cheaper for any five-year period on this chart.
The personal decision:
Why might you want to buy?
My clients tell me that they want to own their places for some combination of these reasons:
- They had a bad landlord.
- Who didn’t do repairs. They want control over the quality of their residence.
- Who raised the rent.
- Who didn’t respect their privacy and came into the apartment.
- They need a different size of residence.
- Rentals of this type are not permanent enough. The owner expects to come back in 1-3 years.
- Rentals of this type are not in the locations they want.
- That type of housing isn’t readily available for rental.
- They want more control over the decorating of the property and more autonomy over how the residence and grounds will look.
- You prefer to rent because:
- Your landlord does all the snow removal, repairs, and landscaping. This works great for you, since you are plenty busy without those tasks.
- You don’t need more space than you currently have. You just want more autonomy.
- You can’t afford to buy because:
- You can’t commit to staying long enough to make it worth your while. (This is especially true of young professionals who could easily be head-hunted to another city.)
- You can afford to rent in the neighborhoods you like. There are not a lot of condos or houses there in your price range. To buy means giving up your current location.
- You have one down payment and you can’t risk it in an unstable market. You will not have another down payment later. If you choose to trade up, you will be stuck unless there is significant appreciation.
Love this chart from the New York Times. It helps potential buyers see the economic cost of what they want.
I regularly have this hard conversation with young professionals who come to Boston for grad school or a first job and want to buy a two or three year condo. I want to talk them out of buying, since it is such a bad economic idea. Some convince me that they understand the economics and are doing what is right for themselves and their family. Do you know anyone who needs to have this conversation?