Don't rent. Purchase your home and own your future.

I’ve recently received a few comments from prospective clients indicating that they believed renting was a better financial decision than buying.  This was surprising to me.  Everybody understands that renting puts money in the pockets of the landlord, not the tennant.  So why would someone believe that renting a home instead of purchasing one would be a better financial decision?

It turns out, there is a belief (or more accurately a fear) out there that it’s too costly and painful to purchase a home, especially when you may have to turn around and sell it a few years later.  To make things even more frightening, many people lost money during the 2008 housing crisis.  Others who are merely aware of the decline in home prices during that period believe they too may be caught up in a similar upside-down situation if they were to purchase.  In these situations, would renting be less costly?  The answer is likely no.

The average family lives in their home for seven years in San Antonio.  While it is difficult to predict the future with any reliable degree of consistency, I challenge anyone to find a 7-year period of history when purchasing and then selling a home would be more costly than renting that same home during that same time.  You won’t find it.  Why?  Even if you purchased at the peak of the bubble in 2007, home prices had recovered by 2012.  The closing costs to buy and sell plus maintenance costs, interest, taxes and insurance over the seven years would never exceed the total rent paid over the same period, even with zero appreciation.  Here’s a link to a spreadsheet I created to compare various situations like this.  Try it yourself.

I’m not saying it’s never a good idea to rent.  In fact, even with the most experienced real estate agent in the most stable market, renting is a viable option if the renter knows for certain that they would not own the home for more than a year.  There are also those working to improve their credit score or learning where they want to live.  In these instances, renting is a good short term solution.  For the long term however, buy.

During the housing crisis there were many of our military who purchased at the top of the bubble, and then had to move even 2-3 years later and were in a difficult situation.  They were faced with renting the house out, selling at a loss, or letting the home be foreclosed upon.  I have friends in each of those scenarios.  The ones who rented the house and rode out the crash were least affected in the long run.  I also owned a home during that period.  I still own it and it’s now one of my highest yielding assets.

Of course we would all love a crystal ball so we could entirely avoid the possibility of losing money on a home purchase.  Without one, however, make sure you crunch the numbers.  When you’re comparing, don’t forget to total up your rent costs.  If you’re interested in how the spreadsheet fields are calcuated or have questions or comments on the topic, please ask or comment.  Happy House Hunting.