Even though the real estate market is recovering beautifully as effects of recession recede, many homeowners still find themselves displaced as a result of foreclosures and short sales. By the rules of supply and demand, this has driven the rental market up in recent years. More families looking to rent equals less rentals on the market, which gives landlords the ability to ask for higher rent. As of January, the asking price for rentals in the Charleston metropolitan area had risen 9.6% over the previous year. The actual rental price rose 6.2%.
The same has happened recently with residential home sales. More families are once again able and willing to buy without fear, and the inventory of homes for sale is way down, resulting in higher asking prices. This is known as a seller’s market. With increasing prices in both renting and buying, how do you know which is better for you? Many people would assume that buying is better, because your home is an asset which builds equity. Though this is true, it isn’t necessarily the best option for everyone. At Johnson & Wilson Real Estate Company, we work with buyers, sellers, renters, and landlords. If you need a professional opinion, you can always call us to explore your options! Before you make any kind of decision, there are several questions you need to ask yourself when determining whether to rent or buy.
- How much financial freedom do I have? There are upfront costs for both buying and renting, but the numbers are significantly different. Costs for buying vary depending on aspects like the type of loan you secure. Do you need a down payment? Will your closing costs be paid by a builder or seller, or will you need to come up with 2-5% of the mortgage loan up front? If you’re short on cash or your credit score isn’t up to par, renting is probably the better option. Upfront costs for renting usually include a security deposit and sometimes the first and/or last month’s rent.
- How’s my credit? If your credit score isn’t in good shape, you might not be able to secure a loan in order to buy. Renting might be a necessity in this case. The good news is that it will give you time to repair your credit while you rent. Come up with a plan to pay off bills and build credit by paying your rent on time each month.
- Am I prepared to cover recurring and incidental costs? The most obvious costs here are monthly mortgage payments and rent. But when you buy a home, you also need to be prepared for yearly costs, including taxes, any HOA fees, homeowners insurance, and upkeep. The upside of this is that some of these costs are tax deductible. Being a homeowner is great when tax time comes around. When you rent, your main recurring cost besides rent will probably be renter’s insurance.
- Will I be moving in the foreseeable future? If there’s a possibility that you might move in a year’s time, buying might not be the best thing for you. That said, many people choose to turn their homes into investment properties when they move. It’s a great way to make your house work for you, especially with the rental marketing doing so well right now. If you'd rather rent leases can be tailored to your needs, and once your lease is up, so is your obligation.
- How much flexibility do I want? Both buying and renting pose a certain amount of flexibility in different areas. For example, it might seem like you're saddling yourself with a huge commitment by buying, but owning a home does give you some freedom by allowing you to make all the decisions yourself. Want to paint the walls? Replace the carpet? Plant a garden? Build a swingset in the back yard? Go for it! There's no need to get permission (unless your homeowners' association has restrictions on types of outdoor renovations). On the other hand, renting makes it easy for you to move if you end up not liking the neighborhood or just need a change of scenery.
Make a list of these questions and sit down to answer them honestly. It will make things much clearer and aid you in making an educated decision. And if you're still not sure about what your best option is, consult one of our professionals at Johnson & Wilson Real Estate Company. You'll get an un-biased opinion from specialists who work in both sides of the business.