Most of us will rent an apartment or house at some point, and many will also buy property, too. Whether or not you decide to rent or buy depends on many factors. Check our list to see if this is the time to purchase your perfect home, or if you should rent a bit longer.
Budget
The biggest factor when considering renting versus buying is how much each will cost. In some markets, buying may be the cheaper way to go. It’s definitely the most straightforward financial choice: you calculate your total budget and find a rental that fits your needs where the rent and utility costs fit that number. When buying, you need to consider factors like the size of your down payment, the interest rate and length of your mortgage, property taxes, insurance costs, any HOA that might exist, and utilities.
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Items like the interest rate on your mortgage vary with the market, as well as your own credit score, and sometimes even the size of your mortgage, with jumbo loans being more expensive. Longer mortgage terms are more expensive than shorter ones (ex: 30 years versus 15 years), but obviously the monthly cost spread across 30 years will be less each month. You will, however, incur more interest.
Property taxes, insurance and utilities often depend on the size of your home. There are exceptions, though. A small, but older home may be less energy-efficient than a newer home, increasing utility costs. The newer, larger home might be more expensive outright, though.
In the Philadelphia market, it was determined in 2014 that buying is actually 48% less expensive than renting! On average, Philadelphia buyers pay around $650 in mortgage payments per month, but $900 in rent. One reason is that landlords build in costs like insurance and property taxes into rent payments – plus profit! Another is that rent demand is high in many areas, especially neighborhoods with lots of students or that are highly desired by people who work nearby. The downside, of course, is coming up with the money for a down payment and closing costs up front, but products like FHA mortgages can help. Don’t forget – buying a home also locks in your monthly payment, so you don’t have to fear rent increases in the future.
Mobility
Are you someone who craves moving to a new city every two years? Are you not sure where your job will be located by next spring? If you don’t plan on staying put for 5-7 years, buying a home might not be the best choice for you. There are always exceptions, though. In a desirable housing market, you may be able to realize your investment on a home – and break even or even make money – in as little as 2-3 years. While life can be unpredictable, determine where you think you’ll be a few years from now. If it’s in Philadelphia, you should probably consider buying a home.
Location
Some locations are tight rental markets, while some seem to have few homes for sale. If you want to live in a neighborhood with lots of sales availability, but little rental possibility, you might consider buying a home to better fit your needs. Buying can also be a great option when you want something that’s usually more readily available when buying instead of renting, like a large yard or garage. The majority of rentals are apartments, while single family homes, twins, and multi-level condos might be more popular when you’re cruising the “real estate for sale” section.
If your ideal location is close to a major business or college, you may also be able to use that to your advantage by renting the home in the future. Even if you think you may want to move in 3-5 years, if you can hang onto your home and turn it into a rental in an area with little rental inventory, you can command a premium price for your property and likely end up bringing in more money than you pay each month!
Customization
Of course, one major reason people prefer to buy instead of rent is to be able to customize a home to your liking. A landlord may be wary of serious décor choices, like a baby grand piano or custom built-ins. At most, you may be able to talk the owner of your property into letting you paint a few walls, but you’ll also probably have to paint them back to “builder beige” or “rental white” before you move out. You’re probably also stuck with window treatments and floor covering options that were pre-chosen by your landlord. Don’t like vertical blinds and gray carpet? Too bad. Take it or leave it!
When buying, you can make any design choices you want, within reason. While you may need to check with local covenants or HOA by-laws, your property is yours to do what you want with. As long as a structural engineer is consulted, you can open up or remove walls, build an addition, finish basement or attic space, add bathrooms, change out flooring, or replace windows. Even many historic districts only govern what you can do to the outside of your home (so no vinyl windows or aluminum siding), but the inside is yours to use how you wish! If you’re interested in a specific style choice, like mid-century modern, Victorian, or contemporary, it’s probably easier to find in a home for sale than a home for rent, since rentals tend to try to appeal to as many people as possible, neglecting to keep, or even install, unique features.
If you think buying a home is the right choice for you, contact me today. And remember: friends don’t let friends buy a home without Agent Lady!
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.
