real estate

Answering the rent-or-buy riddle

Buy or rent sign © Gustavo Frazao/

Whether to rent or buy a home is an easy decision for many people. But for those who have the means and motivation to do either, the choice can be difficult to make.

  • Buying offers freedom from rising rents, a mortgage interest tax deduction and the possibility of building equity in a home over time.
  • Renting offers flexibility and no home maintenance or repair costs or obligations.

For people who aren't in a financial position to buy, renting is the only option. And some people who are able to buy still aren't sure this major commitment is the right choice for them.

Give Bankrate's rent-or-buy calculator a whirl.

When rents are high and prices are low

Affordability is a key factor that can tip the scales to the buy side, says Wendy English, sales manager for Century 21 Commonwealth in Medfield, Massachusetts. Rapidly rising rents in many cities, combined with attractive home prices and low mortgage interest rates, make owning a home seem more affordable than renting.

"They get a letter from their landlord saying their rent is going up," English says. "They crunch the numbers and find it would be less expensive each month (to own), and they would get the tax deduction, so they take the leap and buy."

Even when buying appears affordable, a limited supply of for-sale homes can tip even the most motivated buyers back to the rent side.

When location is a major element

Location also can be a scale-tipping factor, particularly for those who want to remain near family, friends, a relationship partner or place of employment, says Ryan Donovan, a Realtor with Keller Williams Vermont in Colchester, Vermont.

"Something ties them to this place and gives them a reason to stay here as opposed to going someplace else," Donovan says. "I ask them, 'Do you think you'll be moving this year? Yes or no. Do you see yourself moving in three years? Will you still be here in five years?'"

The longer they plan to stay, Donovan adds, "the more inclined they are to buy."

The five-year mark can be crucial because it rarely makes financial sense to buy a home with the intention of moving sooner than that.

Children also can be an important decision point, whether you have kids approaching school age or plan to have a family.

When mobility is important

A typical rent-or-buy scenario is a 30-something couple who see the benefits of homeownership but want to be able to move quickly if they suffer a job loss or can take advantage of career opportunities, English says.

Some potential buyers possess special skills that are likely to take them to far-flung employment opportunities over time.

"If they may spend a year or two at one company, then go to another company across the country, does it really make sense for them to buy?" Donovan asks.

Answer: Maybe not.

When equity-building is in doubt

Some Gen X and Gen Y couples have been told that they should buy, yet they're concerned about the ups and downs of the housing markets, says Maura Neill, a Realtor at Re/Max Around Atlanta.

Those who think they might move within a few years "want someone to give them some sort of certainty that they won't lose money when they have to sell," Neill says.

Unfortunately, there's no guarantee.

"Uncertainty with the job market for upwardly mobile people who want to be able to keep considering all their options definitely factors into the rent-or-buy decision," she says.

Those who want to become homeowners and still maximize their flexibility might decide to buy a house in a strong rental market or a condo that doesn't come with rental restrictions.

"They purchase a property that they could rent if they decide not to stay. I've seen that tip the scales to buy," English says.

When couples disagree

The rent-or-buy decision can cause considerable strife for couples.

Jan Baron, a Realtor at Realty One Group in Temecula, California, describes one pair who were lifelong renters before they found themselves in a position to buy.

"He says he's tired of throwing money away on rent," Baron says. "His wife doesn't want to move. A couple of times he has found a property, and I've said, 'Let's get her.' She doesn't want to go, and they end up not speaking to each other."

Donovan suggests such couples need to "sit down and talk about their feelings with each other until they're on the same page" -- preferably not in the presence of the real estate agent.

"In some ways," he says, "it's a bigger commitment to buy a home together than it is to get married."


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