Is it better to rent or buy a home? Most adults ask themselves this at some point as they form their goals and plan for the years ahead. Owning and renting each have their advantages, but what’s best for you depends on your circumstances. Before you answer the question of rent or buy, here are some things to ask yourself. How long will you stay in the home? Each situation is different, and whether the time you plan to spend in the house warrants its purchase is nearly impossible to predict. In general terms, it takes four to seven years to break even on a home, i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership. If you’re thinking about buying a home and selling it in two years, it is unlikely that buying will be less expensive than renting. Do you think of or need your house as an investment in your retirement plan? Americans are used to their homes being a store for wealth to liquidate in retirement when downsizing their lifestyle. Long-term investing means accepting a certain amount of risk in the pursuit of higher rewards. This generally means equity-type investments, like stocks and real estate. They tend to be the best long-term investments because of their potential for capital appreciation. Although the value of your home may rise, as a cautionary note know that the value of your home can fall as well. Are you financially ready? Owning a home is a financial commitment that requires planning on how homeownership fits into your future. Determine your budget to see if either buying or renting best fits your finances. Crunch all the numbers. A frequent mistake of first-time homebuyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are many additional fees necessary to include to make a fair comparison: principal, interest, property taxes, property insurance, homeowners’ association
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