Should You Rent Or Buy Your First Home: You’ll Tell Me After Reading This!
I’ll share 3 key factors that will help you decide whether you should live on rent or buy your first house.
Sorry to break it to you, but this is what the National Association of Realtors found about housing prices in the US in 2022:
“The median existing-home price for all housing types in March was $375,300, up 15% from the year before. That marks more than a decade’s worth of consecutive year-over-year increases, the longest running streak on record.”
-Courtesy, CNN.
This is good for existing home buyers, but what about you?
Simple. Home prices are going through the roof, so I’ll rent a house and live my life happily after that. Easy-peasy.
Not so soon, buddy. This world isn’t as fair as you think.
Renting homes indeed became cheap thanks to the pandemic (guess why in comments), but the prices are rising and rising to all-time highs.
Whether it’s Manhattan or Florida, you name the city, and rising rents will follow you. Here’s what Realtor.com’s Chief Economist, D. Halle, has to say:
“Nationally, the median rent climbed to $1,827, an increase of about 17% versus the same month last year…The fact that rents are rising much higher than we’ve seen historically is a reflection of the unique time that we’re in, where the economy is adjusting to a couple of extraordinary years and shifts in preferences.”
So what’s the way forward? Live in the streets?
Of course not! And that’s why I’m here.
We will dig into 3 key factors in this rent vs buy debate, and by the end of this guide, you will have figured out whether to rent or buy by yourself.
Let’s start right away, then:
#1: Do you live and work in New York? Then Forget Buying Homes, Forever!
Don’t worry; I have data to back me up, and it’s from the same place: realtor.com.
As it turns out, there are some areas where it is affordable to rent a home rather than buy one, thanks to…
Increasing home prices!
If home prices skyrocket, existing homeowners who are looking to sell their house will ditch their plan as there would be hardly any buyers. It’s much more beneficial for them to let out their houses and get a recurring monthly income.
But this brilliant idea isn’t a monopoly of any single home buyer. To remain in the competition, homeowners keep their rates competitive, so renters are in good luck!
Here’s the complete list of US cities which are best for renters:
- Texas
- Austin
- California
- Boston
- Denver
- San Francisco
- Los Angeles
- Seattle
- Boston
- Oregon
And, of course, New York!
Did we mention all major US cities on this list? Of course not, otherwise how will I mention those where buying is more preferable.
So behold these US cities with affordable housing prices:
- Alabama
- Birmingham
- St. Louis
- Cleveland
- Pittsburgh
The cost of buying a starter home in these cities has significantly dropped since the beginning of 2022. Better check out the current prices to see if you can get a chance to own a piece for yourself and your family.
Anyway, you have got the point, isn’t it? Rent or buy, this decision depends a lot on where you live, but that’s not the only factor.
If you want clean water in your home without any hassle, check this 👇
Speaking of which, let’s head over to #2:
#2: Are You In Florida For Your 2-Year Contract Job? It’s Better To Rent Then!
This is despite the fact that rent rates have gone through the roof in Florida since January 2022. And the reason is rather dumb:
If you are in place in the short-term (around 2–3 years), it’s better to rent houses even though interest rates are lower (Shh…The Feds are also reading this!)
This is because interest rates and housing prices move in opposite directions. So it is better to decide the rent vs buy on the basis of how long you are planning to stay in the place rather than the availability of cheap loans.
[You can invest in REITs - but don’t take loans for that!]
I have a full checklist in this regard, just for you 😉:
- Can you adjust to the city you are planning to build the house in?
- Do you like the place [people and environment]?
- Is transport good and accessible?
- Is the supply water clean and healthy enough?
- Is the air in the city breathable enough?
You can add more questions to this checklist, but I guess I’ve made my point. Buying a house is a hefty investment and so don’t let haste come in between. You can follow this golden rule:
“Renting is normal, and buying is an exception”
In case you are wondering if there are some legit ways to make money online so that you can stay in your hometown, I’ve got you covered. Here are 5 money making methods I’ve personally tested in 2022:
#3: How’s Your Credit Score? [It’s Not Me, The Banks Told Me To Say This!]
The condition of your finances is critical in this buying or renting discussion. So I’ve saved it for the very end.
You might have forgotten your credit score, but the banks won’t. Your credit history, monthly income, and track record of your debt repayments are all taken into account in a loan sanctioning process.
And you are not buying a house without taking a loan, isn’t it? Maybe yes, if you have a giant piggy bank of savings. If you want to learn how to start saving with your first job, here’s my guide to help you get started:
You can also win the Squid Game to buy a house 😂
But in most cases, you are *dependent* on banks for a home loan, and you should be eligible and prepared for it.
I’m sharing the advice of Abundo Wealth’s Financial planner, Andrew Dressel, here [for FREE!]:
“The emergency savings is of high importance and the 720 credit score has more wiggle room.”
He advises people to have six months of expenses saved up in an emergency fund, $10,000 in cash to cover closing costs and moving expenses, and a credit score of 720 or higher when looking to buy.
— Courtesy CNN
That’s quite a big ask for home buyers, isn’t it?
Buying a home indeed comes with a lot of fixed (like loan EMI) and variable (like paying property tax) costs. So remember the golden rule I said earlier and buy only when you are serious about staying there.
You may have already come up with a lot of rebuttals to my “renting is normal, buying is exception’ rule. And the biggest of them all is the Tax Benefits on owning a house!
It’s not a big guess, but hear me out, as you are running into financial trouble thinking of tax rebates:
The truth is tax offsets are max to max 1% of the *annual* maintenance cost.
Whereas the out-of-pocket costs of buying a house can be a lot more especially if you plan to live in the house you are buying [I know it sounds stupid but don’t forget people buy houses as an investment too keeping an eye on rising real estate prices. Ask the Chinese as they know better!]
You may argue that living on rent is costly, too: a fixed (and rising) bill with the constant fear of getting ousted by the homeowner anytime. Is this the life I am supposed to live?
What am I earning for…to pay rent bills?
Your emotion is fully justified, and here is where financial planning comes in. Find suitable investment plans, start your SIP and make the first step towards buying a new home…[It’s not an AD!]
The other steps include choosing the city, residential locality, and god knows what!
Here’s a complete guide on buying a home in the US in case you are interested!
That’s all I have for this edition of the rent vs buy debate. For more, join me in the comments 😊
But hey, could you figure out whether to rent or to buy after reading through all this above?
You can tell me this in the comments too. I’ll cherish them for a fruitful discussion. Follow me if you love reading helpful guides on personal finance. Subscribe to my stories so that you don’t miss any of my new stories. Have a great day, readers!
Have a good day, readers!
