Many blogs on this site are ripped from the headlines of my personal experiences. After all, I’m an expert on me and my experiences are fairly common. Just the other day, I’m speaking with a friend about plans, issues, and future goals. She makes an interesting comment, “I’m over this ownership thing.” Growing up, ownership was always drilled into my psyche. Ownership, ownership, ownership. It seems ownership makes the best sense only when you are prepared: mentally and financially.
My own husband made an emphatic declaration recently – “… our next move is back to a condo!” He didn’t care where or how, but absolutely no house. Let’s assume frustration with a leaky water heater and the prospect of an air conditioner malfunction as the summer heats up were talking. Two months after moving in, that’s enough to drive anyone bonkers. Which is better – rent or buy?
Of course, there are merits to each approach depending on your goals and current financial state. Ownership is still one of the best ways, even with recent economic hiccups, to build wealth over time. Ownership is not a panacea for all that ails you financially. The drawbacks of ownership include:
- Maintenance – You break it, you bought it. Well, you already bought it, so if it breaks, you must fix it. Items break or wear out and must be replaced routinely. Refrigerators stop working. Garbage disposers only last so long. Furnaces need to be cleaned annually. There are maintenance contracts. Of course, the fee involved should be weighed against the cost of maintaining your various housing elements. We’ll look into these options in a later blog. An emergency fund is vital when managing your home so surprise failures don’t send you running to a credit card.
- Neighborhood – Selling to leave the area is a lot more involved than waiting out your current lease – or even breaking the least if need be. Neighborhoods can change or up-and-coming projections may not materialize. I would have been much more comfortable in a transitional community before having children. Your needs may change in a way the community doesn’t support.
- Taxes – The benefit of a fixed rate mortgage over rent is control over increases. Landlords raise rents as it benefits their pocketbook. However, taxes are another expense that can fluctuate. Theoretically, taxes move in both directions – but in practice, they generally only go up.
- Exterior Maintenance – Unless you intend to be the worst neighbor on the block, you might want to keep your property maintained outside. Grass must be cut, snow should be shoveled, and if applicable – apply a coat of paint now and then. The roof can be a headache all by itself. Lawn care professionals are plentiful and generally cost effective, but the cost must be included in your budget. We’ll probably make this a ‘must-do’ chore and squeeze 10 or so years of lawn care out of our kids.
- Associations – Living in communities that share common space like condos or town homes will include an association. For smaller communities, the associations are generally self-managed. While cheaper from a monthly fee standpoint, the additional work and oversight to maintain common areas and common funds is nothing to sneeze at. Smaller associations can also be a temptation for fraud and abuse without property accountability. I personally prefer professionally managed associations to self-managed communities.
I’ve learned there is no one-sized answer to the rent vs. buy question. Just consider the pros and cons of both approaches and be willing to manage the drawbacks. As long as you proceed as an informed consumer, you can make either option work for you.