When faced with a rent vs. buy option, Realtors will always encourage you to buy. In almost every case this is sound advice. After all, homeowners amass 42 times the net worth of renters over a lifetime. Homeowners can take advantage of the tax benefit of deducting mortgage interest. Homeowners can take up to $500,000 (per couple) of tax free capital gains on the sale of a primary residence every 2 years. It is also forced savings as you pay down principal and of course appreciation on the residence.
There are times, however, when renting is the right, interim decision.
1- WHEN YOU ARE DOWNSIZING. My feeling is that Baby Boomers are not downsizing because they don’t know if they really want to retire and have no idea of what that next housing option looks like or where. Step one, sell the house. Rent while you figure out the next move so that you can be flexible and take advantage of or try out options.
Think you might move to a condo but not sure if you would like it? Rent first. This option would open up the larger homes for the move up buyers who would, in turn, make available more first time buyer homes. Inventory shortage solved.
2- WHEN YOU ARE NEW TO THE AREA. I see families stressed to find housing in the 1 week house hunting trip. Settle in. Get to know the area and then buy.
3- WHEN YOU DON’T KNOW WHERE YOU WILL BE NEXT YEAR. Selling a home can be expensive. Homes are appreciating, but at the current rate you would need a minimum of 2 years to offset the cost of the sale.
4- WHEN YOU HAVE LOWER CREDIT SCORES. My advice here is to rent and subscribe to Credit Karma. With this program your landlord gets a monthly email asking if you paid your rent on time. If they reply “yes” or do don’t reply it increases your credit score. I have seen scores go up 150 points or more very quickly.
5- WHEN YOU ARE LIVING AT HOME. Subscribe to Credit Karma and enroll your parents as your landlords. Decide on a monthly rent which you can either pay your parents or give it to them for you to save towards a down payment.
6- WHEN YOU ANTICIPATE A LARGE CHANGE OF INCOME– Finishing a nursing degree but still in school? Getting a Master’s Degree. Whenever you anticipate next year’s salary to be significantly higher than it is now, it is best to wait. It is expensive to get from house to house. Don’t under buy now.
Your end game should always be to buy but have a counselling session with an experienced Realtor so that you can decide on how to best position yourself for the best outcome.