It’s a classic question asked by nearly everyone at some point in life: Should I rent or should I buy? Many fiscal experts spar over this very question, with equally good arguments. Some say renting allows more cash for long-term portfolio investing, while some say owning makes a stable long-term investment with valuable income tax deductions. What’s right for you likely depends on a variety of factors, including your amount of cash savings and debt, your income, and the availability of homes and rentals on the market.
Review what’s on the market for housing. It's no secret that Oregon’s population is exploding, bringing high demand for housing statewide. In fact, estimates released from Portland State University’s Population Research Center show that Lane County added 4,660 residents from July 2016 to July 2017. As you search for housing, decide how much proximity to a locale is worth to you, how far you’re willing to commute, and what the average cost of housing is in different cities and suburbs. Make a radius and narrow your options from there.
Determine your home buying affordability. A basic rule of thumb is that your home should cost no more than 2.5 times your annual salary. Beyond this guideline, owning a home also can include homeowners insurance, property taxes, Private Mortgage Insurance, home improvement costs, and homeowner’s association fees. If you add up these expenses and they equal more than it would cost you to rent, determine whether you can afford to live on the dollars remaining. Ask yourself what you could do with that cash difference if you rent instead of buy. Making this determination might be a game changer.
If you find a home you’d like to purchase, consider the costs and benefits of homeownership. First, you will own the asset, and over time, you’ll build some serious equity. Second, if you itemize your taxes, you’ll be able to deduct mortgage interest and property taxes from your obligations. You’ll also be able to remodel as you wish, without answering to a landlord. On the downside, home repairs and improvements will be your sole responsibility, and repairs don’t operate on schedules. That said, you might just find yourself paying thousands for fixes you never anticipated.
If you’re thinking it may be better to rent, remember that renting comes has its own specific advantages. With a new rental, you’re typically only required to come up with the first month’s rent plus a security deposit, which can be many thousands less than coming up with a home down payment. Your overall cost per month might be less too, and you won’t be responsible for repairs or maintenance tasks, unless it’s in your rental contract. Leases are often year to year, so if you experience a job change or you don’t like your neighborhood, you can simply move somewhere else when the lease is up.
To make a few comparisons as you look for housing, try one of the following calculators: