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When Does It Make Sense To Rent Rather Than Own?

| January 30, 2020
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When you think of the American dream, homeownership immediately comes to mind: a beautiful home with a green garden and a white picket fence. It is the symbol of financial independence and adulthood. 

While owning a home is a fantastic accomplishment for anyone, I should warn you that it is serious business and is no easy feat. Not only does it take a large investment of money, but it also involves a lot of smart financial moves and good decision-making to land the right home at the right time. Depending on where you are in your life, it may be better to rent rather than own.

Ask yourself the following questions to determine whether you should pursue homeownership or continue renting. 

When Will You Relocate?

Closing costs and real estate commissions will usually consume about 7% to 15% of the sale of a home. (1) This is why experts typically advise prospective home buyers to only buy homes if they plan on living in an area for a minimum of 5 years, as it is long enough to break even before selling the home. If you plan to live in your area for less than 5 years, for work or school, it would be better to rent rather than own as you would be free to move at a moment’s notice and would not be tied down financially.  

What Can You Afford?

Owning a home is not cheap. First, you have to look at how much money you need for a 20% down payment. Then you need to consider your monthly mortgage payments and utility bills, as well as other expenses such as homeowners association fees, insurance, and home improvements and upgrades. Add up all of these numbers and compare the final price tag to what you currently have in your financial portfolio. If the price is too steep, then it is best to continue to rent and build up your finances in the meantime. 

What Does Your Savings Account Look Like?

To qualify for a 30-year conventional home loan, you will need to put down at least 20% of the price of the home. If you find that you have enough money for a down payment but not enough left over for an emergency fund, then it is best to not move forward with a home purchase. Your emergency savings should be your top priority, as you will always need to be prepared for a rainy day whether you own a home or not. The rule of thumb for emergency savings is to have enough money saved up to cover 3 to 6 months’ worth of expenses. 

If your savings account has more than enough money to cover emergencies and a down payment, then go ahead with homeownership. If not, aim for the emergency fund first and then make a plan to save for a down payment.  

How We Can Help

Buying a home isn’t something you want to rush into or take lightly. If you are determined to become a homeowner in the next few years and would like to put together an effective action plan, my firm is ready to assist you. Please contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com to set up a free consultation. We would love to help you realize your American dream. 

About Haydel, Biel & Associates

Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com. 

The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Haydel Biel & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by  Haydel Biel & Associates or performance returns of any Haydel Biel & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Haydel Biel & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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(1) https://www.bankrate.com/mortgages/5-year-real-estate-rule/

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