Rent or own? A personal finance expert’s advice on figuring out what’s right for you

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Real estate can be confusing, and one of the biggest questions is among the thorniest of all. Whether you should own your home or rent one is a major decision, and the right answer depends on your own lifestyle and goals. David Weliver, a personal finance expert and founder of Money Under 30, spoke to Bankrate about what you should consider when thinking through your options. His responses have been edited for length and clarity.

How should people weigh the choice between renting and owning in this market? What are the upsides and drawbacks of each?

A lot of the advice that I’ve always given holds true in this market. Buying a home is about putting down roots. You want to look at it that way as opposed to any sort of financial investment. Your home, your primary residence, is not an investment, despite what your uncle says. The reality is a home is not a great investment because you dump a lot of money into it in carrying costs, in mortgage interest and carrying taxes and all of those things. It does appreciate over time, but some of that appreciation is inflation anyway.

It’s really a place to live, and there’s a lot of great things about real estate ownership, including some benefits as opposed to renting, but you pay a lot to live somewhere. When you can rent and not have to have that overhead, the upkeep, the taxes, you can put that money into investments or savings. Renting has a lot of benefits that get overlooked, too, especially the flexibility.

I encourage people to think of it less as a financial decision and more of a lifestyle decision.

In a lot of parts of the country, housing prices have exploded. It increases the entry point to owning, possibly causing people to stretch, not only their budgets but they might be pressured into choosing a home that might not be the best for them. They might be moving sooner.

Part of my rent-versus-buy advice is about how long you’re going to stay there. When does there start to become slight financial advantages to owning your home? Definitely you have to stay somewhere at least five years, and for a lot of people it’s more like 10 years.

One of the big factors in that is the transaction costs of moving. Combine that with the fact that the market’s so hot, are these prices sustainable? If you’re weighing whether you should buy at all you might take that into account. 

What factors are important to consider when thinking about their options?

There’s a few things. One is the cost of owning versus renting, that’s the biggest. The market is one of them, it seems counterintuitive, but the market to buy, the real estate market, doesn’t move with a perfectly correlated way with the rent market. New York City might be very different from LA, might be very different from Omaha, Nebraska. Where I live in Portland, Maine, there’s not a lot of rentals; there are a lot of Airbnbs, and it tilts the scale toward buying.

Mortgage rates have been low for some time, but if it starts to go up, that adds to the cost of buying.

A baseline for some financial stability is having some money in the bank. When you’re a homeowner, your need to have a financial cushion increases. Those can be significant expenses. You need to save for a down payment, but then you need money for everything else that comes with owning a home.

With low interest rates but high prices, is now still a good time to buy?

You look at the fact that interest rates are low as a good thing and the fact that prices are high as a neutral thing. Money that you’re paying for your home is money that, possibly, is equity. Even if prices go down in the long run, they might still come up, and we don’t know where we are in that cycle. Maybe there will be a little bit of a dip and it will keep going up, or maybe this is the new normal and this is where prices are now. Money that you’re paying for your house, you have in your house as equity, but money that you’re paying in interest is out the window. 

Can you explain how Money Under 30 can help folks with this decision?

Money Under 30 is a site I started in 2007. I was in my early 20s and all the advice that I was writing was for a certain type of consumer that was older and more affluent than I was. There was no information out there for someone in their 20s or 30s struggling with all their startup challenges, financially.

The existing advice was all written for people who already had significant 401(k) balances and were starting to think about retiring, not for when you need financial guidance for the first time. Never compared a credit card before, never weighed this decision to rent or buy before. We address these subjects in a way that a lot of other outlets do,  but for people building the financial foundations of their life.

Anything else?

One thing that I did want to add is, when I’m speaking about this decision, it should be clear I’m talking about buying a single-family home or just your primary residence. One of the options that people might want to look into is buying a multi-family or a duplex. That changes the whole equation if you can live in one unit and rent out the other, or more than one. If you can afford it and do it, buying as soon as you can makes a lot of sense. That is only the case if you have units you can rent out for cash flow.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Senior mortgage editor