Rent or buy home composite

(iStockPhoto)

When Laurence DeGaris moved into his first house last August, at the age of 49, the University of Indianapolis marketing professor quickly found himself missing some of the pleasures of renting.

"The best thing in my old place was Lou," DeGaris says. "Faucet leaking? Call Lou. Air-conditioning not working? Call Lou. Now that I'm a homeowner, I got no 'Lou.' You know anyone who does gutters in Indianapolis?"

Is it better to rent or buy a house? That's a question virtually all adults ask themselves at one point or another, and especially around this time of year, as some people consider their goals and plans for the year ahead. So before you answer the question, here are some other questions you should ask yourself first.

Is it important that your house is an investment? If it's very important, you might want to rethink your future living arrangements. "Americans were used to their homes being a store for wealth – something to liquidate in retirement and downsize," says Scott Shellady, a senior vice president of derivatives for Trean Group, a futures and commodities exchange in Chicago. "No longer the case. Houses can go down just as easily as they go up."

[See: A Step-by-Step Guide to Homebuying.]

He adds: "The bull run in housing we saw in the '90s and early 2000s will not happen again in our lifetime."

Shellady also cautions prospective homeowners to think about the health of the city they want to live in before taking out a mortgage. "Bankrupt municipalities can't put out fires. They can't stop thieves. They can't pick up trash and they can't maintain roads," Shellady says. "How much would your house be worth if your municipality was in that situation?"

This isn't to say your house won't be worth more someday versus when you bought it. But if you want a robust investment portfolio more than you want to buy a house, talk to a financial adviser instead of a real estate agent. Additionally, if you believe you're going to be in a house less than five years and want to sell it at a profit, most experts suggest it's safer to stick with renting.

Have you crunched all the numbers? Ron Throupe, an associate professor of real estate at the University of Denver, says the biggest mistake future homebuyers make is comparing a month's rent to a month's mortgage payment.

"Many people don't have all the numbers," he says. "There are many additional fees you need to include to make a fair comparison: the principal interest, property taxes, property insurance, homeowners association fees and maintenance."

The maintenance, in particular, can't be underestimated, he says. As DeGaris found out, if your furnace goes out or a pipe leaks, you have to fix it yourself or hire a professional. And there are other ancillary costs as well. "As a homeowner, you may find you suddenly need lawnmowers and snow shovels and new furniture," Throupe says. "It all adds up."

Can you handle the stress? "Most people weigh the financial aspects of buying versus renting, as they should, since it's the biggest financial decision most people will make. But one big factor to consider when buying a home is stress," says Tim Lucas, editor-in-chief of mymortgageinsider.com, an informational website.

Lucas says the Holmes and Rahe Stress Scale, a landmark stress study conducted in 1970, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28) and change in residence (No. 32).

"If someone has recently made other life changes such as marriage, which is No. 7, switching careers (No. 18) or having a child (No. 14), it might be wise to postpone buying a home," Lucas says. "Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It's better to rent if your life is in flux, and then buy when your stress levels are lower."

[Read: 5 Ways Renters Can Sock Away More Money.]

How old are you? If you're in your 20s or even your early 30s, there are some excellent arguments for not buying a house. Not that you aren't responsible enough to be a homeowner, but you're young, and who knows where life will take you? If you have a house, however, you may find that life can't take you to all that many interesting places.

For instance, a recent study from Dartmouth College in New Hampshire and the University of Warwick in the United Kingdom found that when countries start seeing a climb in homeownership, unemployment rates start trending upward within five years. Why? It may have something to do with homeowners not wanting to move somewhere else to find a job.

"The decision to own versus rent is very much a lifestyle decision as it is an economic decision. In most cases, it is driven by household formation – people getting married, starting families and being able to afford to do so," says Hollis Greenlaw, CEO of United Development Funding, a publicly registered, non-traded real estate investment trust in Grapevine, Texas. "Less than 40 percent of people under 35 years of age own homes, over 60 percent of people over 35 years of age own homes, and over 80 percent of people over 65 years of age own homes."

[See: How to Improve Your Finances at Every Age.]

Indeed, DeGaris is 49, and while he says that "professionally, renting has served me well because I had the mobility to change jobs, which really helped advance my career," he is glad he finally bought his first house.

"There's a certain feeling of groundedness that comes with owning," DeGaris says. "That might not be rational, but it's palpable. The gutters need work but the roof still doesn't leak, so at this point, I'm still glad I made the move."

So what's the answer to whether it's smarter to rent or buy? It probably won't be a surprise to most people, especially those with several decades behind them. But as a general rule, the older you are, the more likely that it's smarter for you to buy a house. The younger you are, the better off you are being a renter.

Tags: real estate, renting, housing, personal finance, mortgages, loans, housing market


Geoff Williams has been a contributor to U.S. News and World Report since 2013, writing about a variety of personal finance topics, from insurance and spending strategies to small business and tax-filing tips.

Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.

For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America"

Born in Columbus, Ohio, Williams lives in Loveland, Ohio, with his two teenage daughters and is a graduate of Indiana University. To learn more about Geoff Williams, you can connect with him on LinkedIn or follow his Twitter page.

Recommended Articles

Housing Market Expectations in 2020

Devon Thorsby | April 2, 2020

The coronavirus pandemic has reduced homebuying and selling activity. Here’s how it could impact the housing market for the rest of 2020.

What Take Off Your Must-Have Home List

Steven Gottlieb | April 1, 2020

Don't let your vision of your dream house cloud your judgment on which details you really need in a home.

All About Tenant Rights in New Jersey

Devon Thorsby | March 31, 2020

Here are the basics you should know if you find yourself disagreeing with your landlord.

What to Do If You Can't Pay Rent

Devon Thorsby | March 27, 2020

Orders to close businesses have left many people without income. Here's what to know about making rent amid the COVID-19 pandemic.

DIY Projects That Add Value to Your Home

Mady Dahlstrom, Devon Thorsby | March 26, 2020

While you're spending extra time at home, add value to your house with these easy do-it-yourself projects.

How to Set Up a Home Gym

Devon Thorsby | March 25, 2020

Create a home gym setup that will encourage you to stay active as you shelter in place.

What's the Cost of Living in New York?

Lisa Larson | March 24, 2020

What does it take to afford one of the most expensive cities in the world? Here is a breakdown of the cost of living in the Big Apple.

'For Sale by Owner' the Right Way

Maryalene LaPonsie | March 23, 2020

Selling your house without an agent can save you thousands, but you could lose money if you don't do it correctly.

10 Secrets to Selling Your Home Faster

Teresa Mears, Devon Thorsby | March 20, 2020

Consider these low-cost ways to sell a home fast by attracting buyers with great photos, fresh curb appeal and social media buzz.

How to Disinfect Your Home

Devon Thorsby, Melissa Shin | March 20, 2020

Pay attention to high-touch areas of your home – especially those you don't normally disinfect.

Can Virtual Staging Help Sell Your Home?

Dima Williams | March 20, 2020

Any staging is better than none, a stager says, but virtual versus physical staging is a decision with sale and profit implications.

How Do I Find My Property Lines?

Devon Thorsby | March 19, 2020

Determining property lines can provide you with information for needed legal changes to your home and backyard.

Virtual Tools for Homebuyers

Devon Thorsby | March 18, 2020

Social distancing doesn't have to prohibit your ability to buy a home. These virtual tools can aid in the deal.

What to Know If Buying New Construction

Wendy Arriz | March 17, 2020

You have the chance to avoid the headache and hassle of construction and move into your brand-new dream home.

Coronavirus Leads to Low Mortgage Rates

Devon Thorsby | March 16, 2020

Economic uncertainty in the wake of COVID-19 sends mortgage rates historically low, and it might be the right time to buy or refinance.

States With the Lowest Property Taxes

Devon Thorsby | March 11, 2020

Median property taxes in these states are the lowest in the U.S.

What to Know About Moving to Hawaii

Devon Thorsby | March 6, 2020

Get ready for sun, sand and a high cost of living if you're considering a move to Hawaii.

5 Reasons You’re Still Renting

Steven Gottlieb | March 6, 2020

Financial, personal and professional factors may lead you to put off homeownership. Should you remain a renter indefinitely?

The Best Places in Florida for Families

Devon Thorsby | March 4, 2020

We rank 11 Florida metro areas for how they’ll appeal to families based on the details that matter most.

Small Bathroom Storage Ideas

Deanna Haas | March 3, 2020

Make the most out of your small bathroom space with these sensible storage and organization solutions.