More often than not, when you ask any real estate professional if you should buy or lease, they’ll say “buy.” After all, how could it possibly make sense to spend money on something that you’re not even getting equity in?
The short answer is: it’s more complicated than that – partly because real estate investments are not predictable, and partly because neither are our lives. Those thinking about whether to buy or lease need to consider a variety of different elements, several of which are discussed below.
- Where are you in your life, and are you looking to settle in one spot? Finding the answer to this question should involve a bit of soul searching. Are you looking into buying a home because you truly want to, and are ready to settle? Or are you buying in an attempt to prove that you are “settled” to family or friends? Part of this question also involves thinking about where you are in your relationships, as those do largely determine how and when a home is purchased. If you would like to buy as a single individual and are able to, then by all means, go for it. But if you are in the early stages of a relationship and are concerned that you may need to move to his or her hometown right after signing a 30-year fixed-rate mortgage, then you may want to reconsider your buying plans. The short of it is: don’t buy if you don’t feel that you can derive value from its sentimental and/or monetary value. Only buy if you’re ready, and if the home will provide you with some sort of profit – whether it’s emotional or monetary.
- What are you looking for in a property? Are you an empty-nester looking to downgrade? Or perhaps a Millennial looking to invest in a first home? Or maybe you’re a second-time homebuyer, just planning a move? Each person is going to be looking for something different in a home, and as a result, each person is going to have a different answer to the “buy or lease” question.
Despite what most assume, it could make sense for anyone from a Millennial to a Baby Boomer to rent instead of purchasing. Why? Well, in some ways a mortgage is simply a lease with equity; if you’re not planning to cash out, and/or won’t have the opportunity to, will the work you put in be enough to benefit you and/or your children? Moreover, is the potential benefit of home ownership of more or less value to you than building services like maintenance work, snow plowing, landscaping, and package deliveries? The answer to that will largely depend on your age, needs and priorities.
On the flip side, if you do have the money to pay cash upfront, have a unique investment opportunity, or can swing a mortgage that makes sense for you, then buying could absolutely be the right choice! After all, despite all the arguments in favor of leasing, buying is the biggest builder of wealth in this country. You just need to consider all factors before making a decision – and don’t let the pressure of what you think you “should” do override those practical challenges and opportunities.
- What are you prepared to pay upfront and down the line? Practical elements like price and investment opportunities are typically one of the biggest components in making this decision, so let’s look at the metrics. If you’re paying $3000 a month in rent, you can effectively purchase a home for $425,000, for a mortgage payment around $2000 a month. If you add in takes and insurance, you’re still below the $3000 a month you were paying in rent, and now you’re building equity. Of course, you do need to consider upfront charges as well – with leasing there are often charges like first/ last month’s rent, security deposit, and broker’s fee, while with buying you’ll need to consider the cost of an initial down payment (typically 10-25% of the total cost of the home). As you begin to play with the numbers, keep considering how and why you want to do this, and make sure that you’re emotionally and monetarily investing in the right option for you!
The piece of advice that ties all of these points together is: pay attention to your instincts. What makes the most sense for someone in a similar situation does not have to make the most sense for you. If homeownership is right, and you’re ready to bite the bullet, go for it. But don’t forget to consider all the factors involved, and give yourself the opportunity to approach this huge life step on your own time, on your own budget.