There is a saying out there, “Why rent and pay off someone else’s mortgage when you could be paying of you own?” Seems like pretty sound advice, doesn’t it? Except that things aren’t always the way they seem. What a lot of people fail to consider is that there are vast differences between renting a property and actually buying it.
A Cautionary Tale
An acquaintance of mine, let’s call him Ted (identity disguised to protect the dummy), used that very saying about owning a property and paying off your own mortgage on me. I advised Ted not to do it as the mortgage installment was bound to be higher. He had been living in a place and paying rent of about $1000 per month.
He ignored me and bought the house. The mortgage was $2000 per month and he was now responsible for repairs on the house and taxes, etc. Within 6 months, he admitted that he’d made a big mistake – he simply could not afford the place and he sold it a short while later.
Fortunately for him, he did not lose much as he got a bit lucky with the market timing. It certainly cost him a lot of stress, but when it was all said and done, it could have turned out a lot worse if the market had moved the other way during those 6 months.
This may seem like an extreme example but it does happen to a lot of people – especially first time buyers. You simply don’t know how much extra expense being the owner of a house can bring.
When Renting is the Better Option
Even if you can easily afford the mortgage and extra costs, here are some other reasons why you might want to rent instead of buy:
Your Life Could Change
Have you settled down in the town you are living in and are happy there or do you yearn for a bit more excitement in your life? Have you found the career path that suits you to a tee? If not, you probably should not buy a house – what happens if you have to leave?
This happened to another acquaintance – let’s call him Tim. He bought a house and got married 6 months later. His company then moved Tim to Australia and they bought a new house. They figured that the old house would sell fairly quickly.
That was a few years ago and they are now battling to pay both mortgages. They are stuck – both houses are mortgaged to the maximum and their new home needs some repairs.
I know that this is an extreme example but it just goes to show what can really happen. As a tenant, you have a lot more flexibility when it comes to moving.
You Can Just Barely Afford it
Here I also blame the estate agents – they always seem to show you dream properties that are a little higher priced than what you can truly afford. If the installment of the house that you are considering buying is at the very top end of what you can afford, carry on renting.
Will you be able to enjoy your new home when the payment is a stretch? What if some urgent repairs are needed? How will you handle the property taxes?
In this case, you are better off continuing to rent.
You Can Rent in a Better Area
There are areas that are very desirable to live in and, as a result, homes there sell at a premium. You could still possibly afford to rent a home there and enjoy the benefits of the good area without the headache of having to come up with a huge mortgage payment.
You Need to Know What you Are Doing
Buying a house is no small matter and requires some research into the area that you are considering. While houses usually appreciate in value, if you choose the wrong house in the wrong area, you could actually lose money when it comes to selling, or might end up, like Tim, with a house that will not sell at all.
There are advantages and disadvantages to both renting and owning a home. It can’t be reduced to a simple little saying and all the pros and cons should be given due consideration.