Relocating? Should you rent or buy?
If the real estate crash taught us anything, it’s that the old rules don’t work anymore, especially for those dealing with a relocation. Recently, TRC has seen a number of transferees opting to rent in a new location rather than buy. Many more have stopped looking at a house as an investment, but rather the place they call home.
The New York Times recently conducted an analysis that found in many of largest metro areas in the United States – New York City, the San Francisco Bay area, Los Angeles, Boston, Miami and Washington, D.C. – prices have risen so quickly that buying property is beginning to look like a perilous investment, with some experts concerned that a price correction is in the offing.
The online real estate company Zillow would add to that hot real estate market list, and include three California towns, Riverside, San Jose and Sacramento; two areas in Texas, San Antonio and Dallas-Fort Worth; Seattle, Wash.; and Denver, Colo.
So should you buy or rent when relocating?
The answer is not obvious, because life doesn’t come with a crystal ball.
Emotional considerations
Of course, if someone is relocating from a hot housing market to a slow one, their dollars will go so much further, making buying an attractive option. But relocating from a slow market to a hot one – or even a hot market to a hot market – poses a conundrum in many cases. The Times article suggested five questions you should ask yourself before you make the decision to rent or buy:
- How much is permanence worth to you? This is actually a question TRC always encourages transferees to think about. If you buy a home, you can live in that home forever and your mortgage payment remains constant, unless you can refinance for a lower rate. Renters sign rental contracts for a specific term, after which rents can go up. The building or home could also be demolished to make way for new construction. In addition, renters cannot make major renovations to the home or apartment because it is not really theirs.
- How confident are you that you will want to stay in the new area? If you are confident that you will remain in the area for a decade or more owning becomes more attractive. But if you feel your stay will be short-term, fewer than four years, renting might be the better choice.
- How confident are you about your future income? If you are renting and lose your job, it is easier to adjust a rental living situation than if you own your home. If you work on commissions or bonuses, those can factor into your decision as well. Is your industry growing or losing ground?
- Can you force yourself to save? If you have a hard time saving, many look at a mortgage as a forced saving plan, since each month you pay off part of the principal amount owed on the mortgage. If you plan on staying in your house for the full mortgage term, you could own the house free and clear. Of course, you could save as a renter, but ask yourself if you will save or spend every bit of money you make.
- Can you accept that the future in unknowable? If the answer is no, than renting might be a better option. None of us know what the future holds: a lost job, a divorce, a housing crash, etc., etc., etc.! The numbers you work out on a spreadsheet can change in an instant. If you are buying a house you must be secure knowing you can afford to live there and see yourself calling it home for many years
Now get down to work!
To make the decision even easier, The New York Times has devised a calculator so you can assess if buying or renting is the better option.
It asks many questions, including the price of the home, how long you plan on staying in the home, the mortgage interest rate, your down payment, the length of the loan, taxes and closing costs, and for renters the additional costs – on top of the rent – such as security deposits and broker’s fee.
As you fill in the numbers, the calculator keeps a running tab of all the expenses of renting and owning. It also estimates what The Times calls opportunity costs, such as the money you could have earned if you invested your down payment instead of using it to buy a house.
Homework done, now you’re armed to find that place to call home.
