Should I Buy or Rent?
Here's a question I get asked all the time, and the answer isn't always easy. Common wisdom tells us to buy as soon as we can, because property is a great investment. That wisdom put a lot of people underwater over the last decade. Still, nearly eight out of 10 respondents believe buying a home is a good financial decision, according to research carried out by the National Association of Realtors. Let's take a closer look at the economics.
I'll Make Money When I Buy A Home
Well, you might. Since 1975, when good data started, houses have risen in value by an average of 4.5 percent per year. Obviously, the picture's a bit more complicated than that, as the mid-2000s boom and bust showed. Over the past thirty years, property values have gone through a series of cycles. A typical cycle consists of a price recession, followed by a period of recovery lasting, on average, four to five years, followed by a housing bubble, where values rise sharply to peak levels. When homes reach the highest values the market can sustain, the bubble bursts, and prices drop. The whole process takes about six to eight years. Whether you make money on a property depends on where in the cycle you buy and sell.
That said, the overall trend is upwards. The Case-Shiller Index, which tracks prices nationally and in various metropolitan regions across the U.S., shows that the average house bought for $75,000 in 1990 would have been worth $100,000 in 2000, and over $130,000 in 2010 -- that's after the market crash. With careful planning, a home's still one of the safest long-term investments you can make.
How Does Renting Compare?
Capital appreciation aside, both renting and buying require a significant monthly outlay. With a lease, you pay rent; with ownership, you repay a mortgage loan. But figuring out which of the two is the cheaper deal isn't as simple as comparing the rent with the monthly mortgage you'd pay if you were to buy a comparable home.
When you make a mortgage repayment, part of your money goes to the bank in interest charges, while the rest repays the principal -- the amount you borrowed for the actual bricks and mortar of your home.
To put rent on a level playing field, you only compare the rent amount with the interest element of your mortgage payment. Both rent and interest are "lost" money -- cash you pay for the simple right to live in the property. The principal aspect of your mortgage is money you get to keep -- rather like putting your savings in bank. As you gradually pay off your loan, the principal repayment converts to equity that you can use to buy a bigger home or fund a comfortable retirement if you downsize. Renting has no equivalent.
Buying Gives You More Flexibility -- Unless You Want to Move
Renters don't control their housing destiny. Landlords can raise rents, move in, sell up and throw you out. Owning a house here in Las Vegas, on the other hand, means you can do exactly what you want (within reason).
Of course, flexibility comes with a cost. If you’re renting a home, the landlord typically pays the taxes, insurance, maintenance and utility bills. If you were to buy a home in Summerlin or Peccole Ranch for instance, these liabilities now belong to you. That includes fixing a burst pipe in the small hours of the morning and using your new-car savings repairing a leaky roof. And don't even think about ignoring the problem -- your mortgage obliges you to keep the property in tip top shape.
When it comes to moving, however, renters hold the flexibility cards. Getting out of a lease is free. Wait a few months to the end of the lease term, and you can go wherever you please -- handy if your job suddenly relocates or you decide to move in with your partner.
Ready to Buy?
You can't predict what will happen to home prices in the next few years here in Las Vegas or Henderson, and you certainly shouldn't buy a home in the hopes of a quick financial gain. But if you're solid financially, have a stable job, a steady income and a decent pot of cash for the down payment; you're well-placed to buy your very own home here in Southern Nevada. At the end of the day, however, buying or renting is a very personal decision. Family, personal and emotional factors come into play. If, on reflection, it makes more sense for you to keep renting for a while, well, there's really no shame in that either.