As we start a new year, many people are coming to me for advice about whether they should rent or buy a home in 2019. This is never an easy question to answer and largely depends on your personal situation and finances. It might be an even tougher decision due to many unknowns at this point in the new year: the stock market has been volatile, interest rates are on the rise, the USA is in a trade war with several countries, China seems headed for recession, and the US Government is currently in its third week of a shutdown. Who the heck knows what the year will bring in the real estate market?
While I don’t have a crystal ball, there are some tried and true rules of thumb that should always be considered when making this important housing decision. So, what should you do, rent or buy? I break the considerations out into two main buckets: 1) Lifestyle and 2) Finances.
- Job security – Stop and think if your job is secure? Might you need to search for a new job soon or perhaps even relocate for a current job to another city? If either of these is true, keep things flexible, RENT!
- Time management – How active is your lifestyle and how much free time do you have to commit to owning a home? When renting, you typically can just report a maintenance problem to your landlord and let them handle it. If you don’t have time for trips to Home Depot, RENT!
- Environmental control – If you rent an apartment or home, your creative choices for your surroundings are going to be much more limited. The carpet, flooring, and wall colors are decisions which typically have already been made for you. Your landlord will rarely allow you to redecorate the place. If this bugs you, BUY!
- Family profile – Are you single or married but no kids? Keep it simple and flexible, RENT! Are you expecting to start a family soon or already have children and are ready to put down roots? Establish some permanence, BUY!
- Cash reserves – Do you have a good cash balance in the bank or are your cash reserves thin? Buying a home usually requires a deposit of tens of thousands of dollars. Move-in requirements for a rental are usually one month’s rent plus a security deposit. If your cash reserves are limited, RENT!
- Credit score – How’s your credit score? Have you checked your FICO rating recently? If your credit is bad, making on-time rent payments to a landlord who reports to the credit bureaus can help raise your FICO score. If getting your credit up is something you need to work on, RENT!
- Tax deductions – Are you in a high tax bracket and getting killed by taxes? Even in 2019, mortgage interest paid by homeowners is one of the biggest tax deductions that can be claimed. If you are paying to much in taxes, BUY!
- The one-third rule – If you have the cash deposit and credit score needed to qualify for a mortgage loan, ask yourself if you can buy what you want in a home for 1/3 of your after-tax income. You will always have other expenses too such as school, groceries, car payments, clothes, etc. If you spend more that 1/3 on your house payment, you will be in financial duress. If 1/3 of your after-tax income can get you the home of your dreams, BUY!
So, should you rent or buy in 2019? Only you can decide, but I hope the above considerations will help you have a meaningful conversation with your advisors and loved ones to decide what is best for you! If you would like to have a conversation about this topic and need help in finding a rental or home to buy, do not hesitate to contact us by visiting www.ncpropertygroup.com.