TO BUY OR RENT
making the best decision for you clear
Deciding to buy or rent takes a lot of thought, and there isn’t a one-size-fits-all answer for everyone. You must weigh your options, consider the pros and cons of buying or renting, and decide the best course of action for you in the stage of life that you’re currently in.
Of course, as a real estate agent, I have an economic interest in convincing you to buy a house. I will try to set that aside as I write this blog and give you the objective facts. And the truth is, I also own a lot of rental properties – so I also have an economic interest in folks deciding to rent as well! Maybe I can be impartial here, and no matter what you decide to do, my team and I would love to help you find a great home to buy or rent.
Let’s discuss renting first – there are some benefits for sure. The biggest one is that you’re not on the hook for major repairs that come up. In addition to that…
- It’s pretty easy to apply for a rental, whereas buying a house typically takes 1-3 months and can involve many hours of your time.
- Renting provides flexibility. When you want to leave, just don’t renew your lease.
- If you know you will only be living in an area for a short period of time, it might not make financial sense to buy because of the costs involved in selling a home. The break-even point on buying a house usually falls between 12 and 24 months of ownership. You can find more information on calculating the rent vs own math at our blog post here.
- If you’ll be moving to an area where real estate does not transact frequently (typically a rural area), or an area where the net population is decreasing (which would place downward pressure on real estate prices), it may be better to rent unless you know with a high degree of certainty that you will be staying in the home for quite some time. Renting in this circumstance could pose less risk than owning.
- What if you had to place the property up for rent when you move, and the market rent is less than your mortgage payment? You may never want to be a landlord, but knowing that you can rent the property and at least cover your mortgage payments is an additional layer of safety in your investment. If you don’t have that layer of safety, you may want to consider renting instead of buying, ESPECIALLY if you are fairly certain that you will only occupy the property for 1-3 years.
- Finally, you may want to consider renting if your credit score is below 650 or you do not have enough savings to cover a large expense, like an air conditioner.
Now, what are the cons to renting? There are a few:
- First, you’re paying your landlord’s mortgage instead of your own. What’s worse is that typically your landlord’s mortgage payment will be lower than your rent. Let’s say your rent is $1500. Chances are that $400 of that will go towards paying down your landlord’s loan, $400 towards their interest payment, $300 to taxes and insurance, $100 to a property manager, $100 to maintenance, leaving $600 left over that goes straight to his or her pocket.
- Your landlord’s house is probably also appreciating at an average rate of 3% per year.
- Unlike a mortgage payment which is fixed, rents tend to increase over time.
- You don’t have permanence. At the end of your lease term, your landlord can ask you to move. You won’t have any say in this, and if you try to fight it, your landlord will almost certainly win in court (at least in Georgia).
- Don’t like something about the house? Maybe the color of the walls? You need your landlord’s permission to do anything about it.
- Your landlord might not prioritize your maintenance requests. Many landlords are cheap, inattentive, or just lazy.
Next let’s take a look at some cons of buying a home, and also explore ways that we can mitigate these risks.
- You are now on the hook for any repairs. Air conditioning went out? Could be a $200 capacitor, could be that you need an entirely new system at a cost of $5-7k.
- We can mitigate the risks of having huge expenses in a few ways. First, doing a diligent inspection of the home before we purchase it and using that inspection to anticipate what major repairs are coming up. Second, we can purchase a home warranty, usually at a cost of $600/yr. Third, we can save up the money that we save every month (by having a mortgage payment lower than our would-be rent) and keeping that cash available for when the major repair comes up.
- You might have a major life change shortly after buying your home, making another move necessary. As discussed, the break-even point in home ownership is typically between 12-24 months, so a sale shortly after buying could result in a net loss.
- This can be mitigated by being able to break even on renting the home.
- Additionally, breaking a lease early can be costly as well. Early termination fees typically run between $2-5k.
- You end up buying a home in a neighborhood you don’t like.
- This can be mitigated by conducting extensive research before buying a home. It might not be bad to rent for a short period of time when moving to a new city as a way to get a feel for the area.
- I also highly recommend visiting a home you wish to buy at different times of day. One evening, go for a walk in the neighborhood. Study commute times at different times of day. Are there train tracks nearby? An airport? Does the neighbor introduce himself during your showing and seem like a weird dude? He’ll probably be weirder once you actually move in! These are questions that you should ask yourself.
- What if I can’t sell the home when I need to? What if I overpay?
- The best way to mitigate this is to have a good agent who understands how to value a home. They should run some comps for you before making an offer so you know you’re submitting an offer that is in an acceptable range. Also beware of buying the nicest, biggest house on the block – it’s typically a better investment to have a dumpy house on a nice block than a nice house on a dumpy block. You can always make a dumpy house nice, but I’ve found it to be exceedingly difficult to convince your neighbors to do the same!
- It can also be a bit of a risk buying a home in a development that is in the early stages of development, for two reasons. First, your house will not appreciate very much while other new houses are being built, because why would a buyer want to buy your two year old house when they can get a new one down the street? Second, what if the developer goes bankrupt and never finishes the development?
- What about natural disasters like hurricanes and floods?
- These disasters are a fact of life in coastal Georgia. We mitigate them in a few ways. First, we try to avoid buying in flood zones when possible – it’s easy to check if you’re in a flood zone or not – check out our blog post on it! Second, we make sure that our home is properly insured, including flood insurance when needed.
We’ve talked about the bad. Now, what about the good? Most of these are basically the inverse of the cons of renting:
- Every month, when you make your mortgage payment, some of that money goes towards paying down the mortgage. When you do this, it’s like putting money into a piggy bank – the piggy bank being home equity!
- Nobody can make you move, or tell you what color to paint the walls in your own home!
- Mortgage payments don’t go up, and are almost always going to be lower than the rent you would pay for the exact same home, especially in the Savannah area.
- Interest rates are currently at historic lows and unlikely to stay this low for long. The lower the interest rate, the more purchasing power you have, meaning you can buy a more expensive home with a lower interest rate and have the same monthly payment than a cheaper home with a higher rate.
- If you do decide to keep the house after you move, a rental home can be a great source of passive income. Over the years, I have built up my rental portfolio to the point where I get close to $4k each month in passive income from it – and many of these properties were once primary residences that I decided to hold on to! I am a firm believer that owning rental properties is the surest way to financial freedom, though it will not make you rich overnight!
I hope this post has been informative and will help to guide your decision to rent or buy a home in the Savannah, GA area! For more information, please check out any of the other blogs I linked, or reach out to us with whatever questions you may have!