When Renting Is Better Than Buying

Renting has always had its advantages over buying, but then this past summer, interest rates fell to an all-time low. However, home sales remained dismal at best. According to an article published by the "Washington Post," the average rate on a 30-year fixed mortgage tumbled to 4.69 percent, falling from an already low 4.75 percent. However, after the popular government tax credit program wrapped up in April -- offering $8,000 to first-time buyers and $6,500 to some repeat buyers -- home sales plummeted.

So which is it? Should renters be buying homes or should buyers be renting?
With fewer buyers in the market, it is true, 2010 is being hailed as a good time to buy. And experts are now predicting an even greater boost in home sales in 2011, which will impact your competition. However, if you can't get it together in the remaining six weeks, the question remains should you own or should you rent?

1. Buying Is Better After Six Years: According to a recent article in the "New York Times," over a six-year period, the total costs of owning versus renting will save an owner $746. If you aren't sure you will stay put for that long, consider remaining a renter until you are.

2. Is the Financial Loss of Renting Worth It? If a buyer can expect his or her six-year savings to be somewhere around $1,000, maybe renters can expect that $1,000 loss to be the price they pay to worry less. Some might argue that the fact that renters don't have to deal with repairing their homes or the state of their neighborhoods is an emotional cost worth saving.

3. And You Are Not a Gambler: Remember, owning a home is never an exact science. Even if you have extensively studied the neighborhood in which you are buying, you can't be sure that down the road it won't fall into disrepair or become the former hippest-part-of-town. So, if you are afraid to take that gamble, don't do it.

4. Some Housing Markets Just Favor Renters: Trulia.com came out with a study this past summer that looked at the average
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cost of a home on sale, and the average cost to rent a two-bedroom home. The higher the ratio, the more expensive it is to buy in that city. In other words, New York City had a ratio of 32.6 to 1, the highest of any other city in America, and Minneapolis had a ratio of 7.5 to 1-the lowest. While Trulia.com does not claim that it is unwise to buy in these areas, they are pointing out that it is a whole lot more expensive-something perspective buyers should take into account.

5. Neither Renting Nor Buying Is Better or Worse for Everyone: On the topic of investing your money, everyone's got an opinion. The truth is, while one person's experience with home-owning might have made him or her a millionaire, another might have lost their fortune in a similar venture. Decide first and foremost whether or not you want to own. Will it suit your lifestyle? Do you have the time and energy to do all the pertinent research? If not, you will need to look at other ways to invest your money.

The argument of buying versus renting has only one truth: Both are as good as they are bad. However, the cornerstone of money management remains: Buy low, sell high. Right now, interest rates are low and home prices came down after the bubble burst. So, if buying is the right investment for you, now is not a bad time to do it.

However, if you are happy in a rental with your landlord doing the heavy lifting, you are not making a bad financial decision. Just a different one.

Joselin Linder is co-author of Game-Based Marketing (Wiley and Sons, 2010).

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