When Renting Makes Sense

About 31% of people who live in houses are renters. That is partly because the average price of a home in CT in 2006 was $287,500, and average condo was $192,500. While owning a home is a desirable goal, especially when values are on the increase, sometimes renting is a better option. "Home buying is not for everyone - and certainly not for everyone at every point in their lives," says Eric Tyson, co-author of Home Buying for Dummies. "You really need to assess your overall expenditures, not just your housing expenditures, and ask yourself if you really can afford to buy."

 

Make sure you can comfortably afford it before taking the leap to home ownership - you don't want to struggle with being "house poor." Home ownership comes with many hidden costs. Of course there are the down payment, mortgage payments, insurance and property taxes. But maintenance, repairs, and home improvements can easily add up to thousands of dollars a year - usually at least one percent of the home's purchase price. For example, if you buy a $200,000 home, figure on spending $2,000 a year just for repairs and maintenance. Then there are big expenses. A mid-range roof replacement averages $11,164.

For young people, it's a good strategy to get one's financial life in order before taking on the kind of debt required to buy even a modest condo or starter home.

Some examples when it does not make sense to own:

• Older people selling large houses. "In some cases, given their age and lifestyle, it doesn't pay for them to buy a smaller house. Or they may be temporizing until they decide whether to move to Florida or closer to the kids or something else," says Diane Saatchi, Senior VP with the Corcoran Brokerage.
• People who think they'll have to move frequently for their jobs. "Residential real estate has relatively huge transaction costs," Tyson said of the broker's fees, closing costs, registration fees and other expenses associated with the purchase of a home. "To buy and later resell, figure [on costs of] about15 percent of the home's value. That's huge, and it means you have to stay put, ideally for at least five years, to recoup that 15 percent."
• People who want to live in areas where home values have risen rapidly. Buying a home may mean mortgage payments of $5,000 a month or more. They are so stretched that they can't afford to buy furniture. Or they may end up with a long commute.
• People who don't have the money needed, not only for the mortgage, but also for the other expenses that come with ownership, like real estate taxes, insurance, condo fees, and repair and maintenance costs.
• Coming off a divorce. When homeowners get divorced, at least one has to move out. It may take a while to recover financially. Also, divorce is very stressful, and many newly divorced people do not want the added hassle of shopping for a home, mortgage and insurance and the responsibilities that come with home ownership and maintenance.
• Those who want to check out an area before making a long term commitment. Renting for a year or two will give you a chance to see whether the location and community are right for you.

More info:

• Home Buying for Dummies
• Rent vs. Buy Calculator (AOL)

Sources:

• 10/4/06 Hartford Courant, For Some, Renting is Better than Buying, by Eileen Alt Powell, AP
• 11/5/2006 Hartford Courant, Homeownership Comes with Many Hidden Costs, by Ieva M. Augstums, Dallas Morning News