In the past it was common for most people to believe that purchasing a home was the smartest financial choice possible. You invest in the property, improve or maintain it, earn equity in it, and enjoy all of the tax benefits that come with a mortgage or second mortgage.
When the subprime mortgage crisis struck around 2008, however, people began to wonder if this classic model of financial savvy was still true.
So, is it? A recent article in Business Insider has one very solid answer about that. When posing the question of whether renting or buying a home makes more sense, author Megan Durisin said that it boils down to a single factor: location.
It's Still About Location, Location, Location
The old real estate comment about the significance of location (which is often phrased as location, location, location) still holds true. Effectively, what the experts agree on is that it could make sense to rent a home in one city but be close to financial self-destruction by opting to pay rent in another.
Of course, most also say to take a few steps back, and examine the markets in general. What they would point out when you do this is that home values are much more realistic now than before the crash. This alone points to buying as a smarter choice.
Investing in the Future
With home prices still at some of the lowest levels on record, it just makes sense to consider the rent versus mortgage equation. Even then, you have to still examine the location. You need to know the local market and the patterns in pricing.
Are they on the rise? What is going on in the area? We can use the city of Detroit, MI as an example of someplace with ridiculously affordable housing prices, but with a city that is actually on the decline (declaring bankruptcy in July of 2013). That doesn't bode well for the market or for the value of the home in both the short and long term.
You also have to consider the average costs for utilities as some areas are also a bit higher in this area. A lot of experts say to do a comparison or a "break even" equation that would roll the costs of a down payment, closing costs, and utilities into a single monthly rate. Then look at rents. If it is going to take many years of paying the mortgage before it is more affordable than rent, you have to decide which is more important.
So, you look at the locality and the market and then make the call about buying. Also, don't forget your plans too. If you plan on being in an area permanently or for at least three to five years, buying may be a better choice. However, if you are going to relocate for work or other reasons within that five year span, it is just practical to opt for a nice rental.
Durisin, Megan. "Renting vs. Buying a New Home." 2013. Business Insider. 2013 <http://www.businessinsider.com/renting-vs-buying-a-new-home-2013-4>.