This is one of the most hotly debated topics by financial gurus. Some people believe that renting is better, while others believe that buying a home is better in the long run. Grant Cardone has said in his videos that you should rent where you’re staying but buy houses to rent to other people.
That’s one way to do it. But most people have not reached a stage where they can invest in property at that level. Most just want to know if it’s better to rent or buy.
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Buying vs. Renting: Factors to Be Considered
This is a topic that has no right or wrong answer. The hard truth is that in the long run, owning a home will be cheaper. However, when you’re first starting off, renting might seem like a cheaper option. Over time, your house payments and interest rates will decrease.
Buying a home is a better option if you are not anticipating any major change in your location over the next couple of decades. If you own a place and move inevitably, you either need to find a tenant or sell it before you make the move.
When it comes to renting a home, the rates keep going up every year without fail because of inflation. Also, you’re not in control of your rent. The landlord is. If you are young and not married, renting a room is fine. It is cheaper and you can split up the costs with roommates.
You will not be held responsible if anything breaks down or if the house needs repairs, etc. The landlord will shoulder the bill. Your commitments will be low. You can also negotiate rental increases or look around for cheaper places. When you are young, time is on your side, and you have plenty of options to consider.
Pros and Cons of Buying
If you are older, married and have a family, renting may be feasible in the short run, but your goal should always be to buy your own home. This can be a very emotional decision, and it is for this reason that you must always side with logic and try to keep emotions out of it as much as possible.
Too many people make the mistake of buying their dream home even if they know they cannot afford it. They often fail to check if it is within their budget. They tell themselves that they’ll make extra arrangements to make ends meet. We all can be guilty of wishful thinking to some extent, but logic should ultimately preside over emotions in all major purchases.
You need to consider all possible scenarios before buying a house. All it takes is one financial wrench thrown into the works to bring the house down on you. One partner loses a job and suddenly the house payments get too expensive.
If you miss a few instalments, the banks will start hounding you. Your dream house can turn into nightmare instantly. This scenario plays itself over and over thousands of times every single day. So, you must be wise when buying a home.
How to Decide on Buying a Home
You’ll need to ask yourself a few questions. Will buying the house affect your budget severely? What are the fees like? Are you going to go for a fixed rate mortgage or an adjustable-rate mortgage?
With a fixed rate mortgage, the interest rate never changes. It’s safer, but you might lose money if interest rates drop. Adjustable-rate mortgages have interest rates that vary. If the current economic climate has low interest rates, you’ll pay less.
However, if interest rates soar, you’ll end up paying more. It may save you money now and then, but it can be risky and if interest rates go up, you may end up paying more in interest than the actual monthly payment itself. So, be wary of it.
You can decide on buying or renting based on the following five steps:
- How long do you plan to stay in the same place?
- Calculate the cost of renting vs buying (consider inflation, interest rates, rent increases, etc.)
- Does your job depend on your location?
- What are the risks involved?
- What is your current financial situation?
At the end of the day, assess your financial situation and commitments before deciding if you should rent or buy. Buying a home will have a long-lasting impact on your finances that lasts for about two decades. So, decide wisely and logically.
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