Pandemic Have You Itching to Move? - Buy vs. Rent Revisited
The COVID pandemic has accelerated many trends. The desire to relocate is one of them.
Relocating and buying a new home in a new area is a major financial commitment, even if you have done it several times in the past. While it usually feels good to be an owner, homeownership is still not for everybody, especially factoring in the realities of the pandemic.
If a relocation is in your future, consider the pros and cons of owning a home versus renting in a post-COVID world.
ADVANTAGES OF HOMEOWNERSHIP
#1: Long-Term Investment
It’s important to think long-term. As a general rule of thumb, purchasing a home is a solid option if you plan on staying there for five years or longer - as this gives your property time to grow in value. If you are thinking your move is short-term or your new commute (if and when you are called back to the office) is unsustainable, buying may not be the best option for you.
#2: Building Equity
Every time you put a payment toward your mortgage, your home equity grows. Equity is a great way to help you build wealth over time. It has worked for generations of home buyers, so the chances are it could work for you under the right circumstances.
#3: Low Mortgage Rates
Interest rates are still near all-time lows, so mortgage rates remain attractive. Low fixed rate mortgages make budgeting easy compared to rents that can increase with every lease renewal or move.
#4: Customization
Under the work from home paradigm, you can renovate your own residence to meet your specific needs now and into the future. Renters simply do not enjoy this benefit.
DISADVANTAGES OF HOMEOWNERSHIP
#1: Upfront Costs
Closing costs on a mortgage generally run between two percent and five percent of the purchase price. Costs include the home inspection, title search, title insurance, mortgage insurance (if less than a 20 percent down payment is made) and insurance premiums. If you are moving to a new state, property taxes may be different than wherever you are coming from. It is easy to overlook these costs once you are wrapped up in the excitement of a potential move.
#2: Less Flexibility
For many, it remains unclear if companies will continue with the "work from anywhere" mantra many have adopted over the last year. If your physical presence at the office is required more often than you anticipated, it can take months to sell a home. If you must relocate quickly, this could mean paying multiple mortgages as you work to sell your home.
#3: Maintenance Costs
Different climates and locales will impact your maintenance costs. Have an eye on a place in the mountains? Snow will add wear and tear to the exterior of your home. A bear may even break down your door to get to your garbage can. It happened to my brother-in-law! Your heating costs may go up and you may need to hire someone to plow your driveway regularly.
#4: Property Values Can Fall
There is no guarantee that your home’s value will increase. There are a number of factors both in your control and outside of it that could affect this. If you are contemplating a purchase after only a virtual tour, make sure you understand the neighborhood, city and state you are buying into.
#5: Lack Liquidity
While houses have significant value, it can be difficult to access that value on short notice. Houses don't sell as quickly as stocks or other assets, so make sure to understand your liquidity needs.
ADVANTAGES OF RENTING
#1: Costs May Be Lower
Depending on your living needs and current financial situation, it may be more cost-effective to rent a house or apartment. Many rentals even come furnished, which could come in handy if you want to try out a new area before making a more significant financial commitment.
#2: You Aren’t Responsible for Repairs
If you are maintaining a budget, then you won’t need to factor in-home repairs, as they will flow through to property owner.
#3: Flexibility
Buyer's remorse can be unpleasant if your new neighborhood or town doesn't measure up or meet your expectations. If you are renter, making another move can be relatively quick and easy.
#4: Lower Upfront Costs
In order to secure a rental, you’ll be asked to put down a security deposit. This is usually equivalent to at least two months' worth of rent. Unlike obtaining a mortgage, you don’t have closing costs and you may avoid other fees like HOA dues, painting supplies or other renovation costs.
DISADVANTAGES OF RENTING
#1: No Renovations or Alterations
Need to add a wall or door to section off your home office? Such alternations will be difficult or impossible since you aren't the owner. Your landlord likely won't want to make the investment, so it is best to plan to live in the house "as is" for the term of your lease.
#2: Your Rent May Increase
Landlords have the right to increase your rent when it’s time to renew your lease, although you may be able to renegotiate the terms.
#3: It Won’t Improve Your Credit Score
Paying your mortgage on time every month can be an effective way to improve or maintain your credit score. Paying your rent on time each month is important, but it won’t necessarily improve your credit score.
#4: Your Home Isn’t Building Value
Because the home you are renting isn’t yours, the money you pay in rent isn’t working toward building equity.
Every individual and family has a situation that is unique to them, so for some people, it may make sense to purchase a home while others will benefit from renting. The pandemic has certainly changed the way that we live, so this can come into play when trying to decide what your next move should be.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
---------------------------
Advisory services are offered through Darrell Capital Management, LLC, an Investment Advisor in the Sate of California. All content is for informational purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Investing always involves risk and the possible loss of capital. Opinions expressed herein are solely those of Darrell Capital Management, LLC. The information contained in this material has been derived from sources believed to be reliable but is not guarantee as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Being registered as an investment advisor does not imply a certain level of skill or training. Social media posts reactions and comments should not be viewed as endorsement or testimonials. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any state other than the state of California or where otherwise legally permitted.