Rent or Buy? One of life's toughest questions.

It can be really difficult to move to a new place, especially if it is unfamiliar. Many times people relocate because of opportunities in their schooling or in their career. Sometimes it is family related: they get married and need a larger place, or maybe a separation and divorce and need to downsize. Whatever the reason, people keep on moving and with that move comes a tough decision- how do I find that new place to live?

There are all kinds of statistics out there that can break down a community based on every possible detail- income, education, population, density, marrieds, singles, with or without children, how much rain, how much sun, and so on. There are even calculators to determine how much money you can save by buying over renting. I will tell you that within a certain range, buying will always beat renting. Let's use an example: Susan, who makes $40,000 per year, can afford around $1100 per month for housing costs. The assumption is that, after taxes and other expenses, no more than 35-40% of income should go towards her housing. The question is whether or not the $13,200 she spends on housing that year is going to be taxed. If it goes towards rent, it gets taxed. If it goes toward interest on a home loan, it's not. I am not an accountant, and you need to check with one to verify the accuracy of this information. The basic idea is all I am trying to get across.

After thinking about the money that can be saved by buying as opposed to renting, you have to ask yourself if you are ready for the commitment to buy a home. A renter can pick up and leave after a year or two, nothing holding them back. A buyer has a responsibility towards his home, and the bank from whom he mortgaged that home. If Susan rents a home at $1100, then she can just pay bills and call the landlord when the fridge stops working. If Susan buys a home between $150,000 - $200,000, she gets that nice tax write off but has to go buy herself a new fridge. She also has to make sure that her property taxes are payed. Let us not forget that she had to pay thousands of dollars towards owning the home as well, including earnest money, down payment, loan and title fees, transfer and recordation taxes, and maybe some points or other costs associated with purchasing a home. Not everyone has $15,000 lying around for buying a home.

When looking for a home you have some very important questions to ask:
1. How much can I afford every month?

2. How long do I plan to stay? If I need to leave, can I wait to sell or must I leave immediately? Do I want to worry about selling?

3. Do I want to be the one in charge of my house? Or do I just want everything to work and not have to worry about if it breaks or not?

4. Do I have enough cash on hand to buy a home? Do I understand all of the costs associated with buying a home? Do I also understand all of the costs associated with maintaining a home?

These are some questions to consider before jumping in and buying a home. Step back, look at the pluses of buying, and look at the pluses of renting. I work with renters and buyers and try to help them make the best possible decision based on their current financial situation, and help them get the guidance they need to make a fiscally sound decision.

Next time... Home Warranties and Do-It-Yourself projects