First-Time Home Buyer Tips - When Renting is Better

by Staff - Original publish date: January 18, 2012

Any real estate professional will give you a litany of reasons why it makes sense to buy a house. But as with everything else, it depends on who and where you are, in your life as well as your career. Despite the prevailing assumption that everybody, everywhere sooner or later should settle down and buy their own home, research shows there are actually times and circumstances when renting might be a better idea.

Will you put in the time?
In any investment, there's no such thing as a sure thing. What usually makes real estate a better risk than most is time. The longer you commit to a property, the better your chances of seeing its value appreciate.

If it is likely in any way that you cannot hold on to a house for more than a short period of time, must you take the plunge in the first place? Letting go of a property before it has appreciated enough to cover the costs and commissions is not pleasant. If you acquired the home with a down payment of 10 percent or less, it could be brutal. To sell you'll have to part with about 6 percent in real estate commissions, as well as closing costs of about 1.5 percent for the seller.

A big financial hit like this will likely wipe out appreciation gains, assuming there were any in that house. If the purchase was made with an even smaller down payment, chances are you'll come out at a substantial loss.

Will you like the neighborhood?
If you are new to a state, city or town, research suggests you take ample time to acclimatize before investing money in a house and its neighborhood. "My wife and I hurriedly bought a beautiful house before we'd even lived in the new city," said William E., who relocated to the Pacific Northwest from Illinois a few years ago.

"The prices were so much lower than Chicago, we were amazed to find a house on an acre with trees and a pool for less than $400,000. But within a year we were spending all our time commuting to the other side of town, for everything, even our kids' schools. We could have bought two dream houses in the neighborhood we preferred, but our realtors had only showed us homes in our price range."

If you are relocating to a place you hardly know, spend a year in a rental until you're certain where and how you want to live.

Will you keep all your commitments?
Ironically, some couples purchase a new home in the hope of alleviating problems in a relationship, spurred on perhaps by the notion of a second start giving new purpose to their lives together. Unfortunately, when plans don't work out, both partners have to suffer the indignity of reselling the property before it has had a chance to appreciate.

Losing money in this way does nothing to help an already difficult situation. If you and your partner have any doubts, experts say it's not the time to make a major investment.

Will you be happy giving up the freedom?
Initially at least, renting is less financial pressure than buying. Paying a first and last deposit doesn't compare to the big chunk of change required for a down payment on a house. And even if you have enough savings, you could invest it otherwise and hope for significant capital gains. With current market volatility that may not seem prudent, but just imagine if you'd invested a typical down payment amount in the stock market ten years ago.

Renting gives you the freedom to move around without having to wait for a house to sell. Renting is also lower risk because natural and other disasters like floods, earthquakes, and boiler explosions are the landlord's problem, not yours.

Even though rents tend to increase by 3 percent a year, unexpected maintenance costs or sudden property tax hikes don't concern you either. Ask any homeowner and you'll hear some tale of woe. Houses have an unfortunate tendency to leak, attract pests, and cave in when your bank balance can least afford it.