Here are some cases that renting makes more sense (#1-7):
#1 Your cash flow is tight due to job changes, high medical bills, etc. and you don’t have several months’ reserves saved.
#2 Your rent costs about 40% less than owning a similar house (Owning cost: PITI-mortgage Principal, Interest, tax and insurance) and that without the 40% saving, your cash flow would be negative.
#3 Traveling most of the year, living abroad like in Tim Ferriss’s vagabonding life style.
#4 You are new in town, plan to stay long term, but not sure which part of town would be the best for yourself and/or the family. 6 -12 months rental would give you the time to learn about the city and areas you really like, and then you can target those areas to buy before rental period ends.
#5 If you have the ability to utilize an opportunity cost (cost to buy a property, like down payment and closing costs) and get 15%+ return on your investment.
#6 If you live in extremely high home price areas (SF, Irvine, Honolulu Downtown, etc.) where the Home Affordability Index is well below 100.
#7 Not certain how long you’ll be living in an area (higher than 60% chance of moving out of city or state within two years due to job or family situation changes); it might be better to rent unless you can buy a property that will rent out and gives a neutral cash flow – meaning monthly expenses of owning (mortgage, interest, tax, insurance, maintenance) is equal to rental income minus expenses.
On the flip side, if none of the above reasons apply to your situation, buying should make more sense (#8-13).
As a real estate professional, I get the question, “how’s the market?” a lot. I’d tell them the market is very good most of the times unless I see multiple real estate market crash indicators lining up. Otherwise, real estate purchasing is one of the safest investments you can make in the United States. This shows why you should buy (in Renting vs. Buying comparison).
#8 You pay your landlord’s mortgage vs. You pay your own mortgage
#9 No equity vs. Equity grows as loan balance reduces and home value appreciates
#10 No tax breaks vs. Deduct mortgage interest and property taxes from your income
#11 Uncontrollable rent increase or eviction potential vs. Set house payments that allows for easier budgeting (with fixed mortgage, not variable) and is stable (your house).
#12 Possible restrictions of pets, number of guests and/or usage vs. Invite anyone and have your choice of pets, like one of my clients with 7 dogs (unless in HOA restricted areas such as condos).
#13 You can’t really change much of the decoration (colors, fixtures, etc) vs. Make it your place, any way you want.
My friend Kevin’s story
My friend Kevin, who moved to Portland in 2010ish, was on my tennis team over the years. When he left town for a better job opportunity on the east coast around 2015, he said, “I should have listened to you and bought a small place several years ago. Then I would be leaving here with a nice bit of cash or at least take back the rent I paid over the years.” As you may know, between 2010-2012 was the best time to buy real estate in Portland, Oregon. He probably would have left town with about $50-100k in his pocket in that 4-5 year period. Even without the 2007 crash and 2013 bounce-back (considering the historic average of 3-4% annual real estate appreciation), he would have gained $10-20k (if he bought a $200,000 property and stayed there for 4 years). He probably would have bought a rentable property (if he hired me as his agent :), which then would become a small cash flow first investment property if he chose to keep it. If only he had bought!
Call 503-515-4499 if you’d like to explore your options or fill out the form below. We will contact you and chat about your options. We are licensed in Oregon, however we know some great real estate agents across the county and internationally. Let us know how we may help!
