In the past, owning property was a staple of the American Dream. Recently, renting has become much more mainstream.
An FKD Feature exclusive

It’s an age old question that haunts our financial existence: weighing buying versus renting and deciding which is the best option for your lifestyle. Admittedly, many millennials, especially in overheated real estate markets, cannot afford the gargantuan down payments that accompany homeownership and are forced to rent.

For those of us that live in more affordable areas, buying can be extremely tempting. Being a property owner is probably the best choice for those who have the cash, so let’s first explore the the upsides and downsides of homeownership.

Make the death pledge and buy a home

Getting a mortgage is a pretty big milestone in our lives. The word mortgage literally means death pledge in old French, and these loans are pretty much the only path to homeownership for millions of middle class people. In more affordable areas, you can put as little as three percent down and end up having a payment that’s less than your current rent.

Of course, being one of the lucky ones is contingent on having good credit, making a decent salary and ultimately getting approved for a mortgage. Also, finding a house that you can commit to for a long period of time can be extremely challenging, if not impossible in some markets.shutterstock_204649942

Once you’ve completed the process of getting a loan and purchasing a house, you can count on appreciation (although there have been significant real estate recessions in recent time), and you’re largely insulated against rising housing costs.

The less glamorous side of ownership includes unforeseen maintenance costs (old properties are especially expensive to maintain), property taxes (sky-high in many states), and the inability to move easily.

How long you expect to stay put is truly what should drive your decision to ultimately buy or rent. If you’re expecting to radically alter your lifestyle, move across the country or just can’t commit to a certain house, it’s likely that you’re much better off renting.

The new normal is renting forever

Renting was viewed by past generations as throwing your money away. As soon as people were able, they’d muster together a down payment and buy a home. Today, cultural norms have shifted in favor of renting. Many millennials move far too often to establish roots in one particular place or can’t wrangle a down payment together to buy a home.

Selling your home often often has very high transaction costs because real estate commissions can cost you up to six percent of the sale price. Also, if you’re forced to sell during bad times, it may leave you underwater on your mortgage, whereby you owe more money to the bank than your property is worth.

The other advantages of renting are pretty obvious: the property isn’t yours, so if it needs maintenance, burns down or meets some other terrible demise, it’s not your problem. The downsides are also fairly straightforward: your landlord can ask you to vacate the premises when your lease is up, and you can pretty much count on rental increases every year.

Takeaway

I’d taking buying over renting any day, but in the end, it’s an important financial choice that each person must make on their own (or with their spouse). There is a pretty nifty calculator, courtesy of The New York Times, that allows you to quickly tally up the more financially prudent move with some basic statistics about your prospects where you live. 

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Posted 11.04.2016 - 04:14 pm EST