4 Pitfalls to Avoid When Deciding to Rent or Buy
It’s an age-old debate where it’s nearly impossible to predict the winner. One of the biggest financial decisions you’ll make is whether to rent or buy a home and opinions are often split as to where you can make the greatest return—in home equity or an alternate investment. Buying a home or renting is a personal decision that wise people make after they crunch a few numbers and consider where they are in life, their jobs, and about a hundred other variables. Initial costs, recurring costs, opportunity costs—so many factors come into play that making a decision can be like trying to look into a crystal ball while simultaneously nailing Jell-O to a wall.
To help you analyze your personal situation, we’ve taken some cues from Lifehacker.com in Kristin Wong’s post, Why the Rent vs. Buy Debate Is Completely Pointless to compile benefits and pitfalls to consider:
Benefits of buying:
- • When you pay off your home, it’s yours. You eliminate the expense of housing once you’ve paid it off.
- • If the home appreciates more than you’ve paid in mortgage, interest, taxes, and maintenance over time, you’ve earned a return, or you break even.
- • Tax credits help offset some of the cost of homeownership.
Benefits of renting:
- • Renting isn’t throwing money away—you get a place to live.
- • Buying has anopportunity cost—the amount you can invest and earn on the down payment, taxes, insurance payments, and interest.
- • You don’t have to pay for repairs, maintenance, or other issues that come up.
Whatever benefits you’re looking for, try to avoid these common pitfalls:
- Don’t make it a measure of success or social status. The decision of whether to rent or buy should not be tied up with an outdated notion of status symbol. The real measure of success is if it makes financial make sense for you—not what others will think.
- Don’t make an emotional decision. Like bad relationships, so many people stumble into homes and apartments out of love. Though it’s important to love where you live, take emotion out of the equation when you’re crunching numbers. Or at least be aware of how your psychology is influencing this huge financial decision.
- Don’t forget to consider your personal logistics. As much as it comes down to the numbers, there’s more to your personal situation to consider—for example, how long you plan on owning the home, low long your commute is, how stable your job is, and if you’ll have money for maintenance.
- Don’t view your primary home as an investment, but as a purchase. Don’t expect the house you’re living in to support you as a retirement strategy. And just because a home may be a bad investment, doesn’t mean it’s a bad purchase after considering all the factors.
If you’re looking for a rent vs buy calculator, we recommend The New York Times Rent vs. Buy calculator for simplifying these complexities, depending on your own individual specifics. Still, a calculator can only do so much. It might tell you the better long-term decision on paper, but that still doesn’t mean it’s the best decision for you.
We can say confidently that in any buying scenario, the longer you own the home the better. Plan to own the home for the long haul; whether you’re living in it or renting it out. And don’t waste your time and energy tracking the value going up and down, but think of it as any other long-term investment where you’ll likely win in the end.
If you do end up buying real estate, treat the decision to buy a home as you would any other major piece of your financial strategy. What if we could show you a way to recapture the opportunity cost of your down payment, and maybe even make a return on the entire purchase of your home? May sound crazy, but it’s easier than you think.
The Perpetual Wealth System is powered by the one of the oldest industries, the insurance industry, and has offered continual returns for over a hundred years. We want to teach you how to put money into a permanent insurance policy, borrow from yourself for the down payment or the entire house, and watch that money continue to make a return as you pay it back.
At Paradigm Life, we want to show you how the Perpetual Wealth System can offer a pathway to home ownership as well as finance all major purchases in your life. And those are “life” benefits that you receive long before you leave a financial legacy for your family. We always recommend building your financial strategy around a stable environment outside of Wall Street. We are excited to invite you to take 2 minutes to sign up for a FREE, extensive eCourse called Infinite 101®. You’ll receive access to video tutorials, articles, and podcasts. It literally costs you nothing to become educated on this ideal financial strategy and start changing your wealth paradigm!
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