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Should You Keep Renting?

15 Apr 2016

Posted by Joseph Coupal

Many couples in their early 30s who don’t yet have children but hope to within the next few years are renters. They are content in their current situation, but have recently noticed how much family and friends have been encouraging them to buy a home because it’s a great investment. They are being convinced that it is in their best interest. Are they missing the boat?

Here is one answer: For decades, owning a home was synonymous with achieving the American dream. People were expected to get out of school, get a job, and buy a house. Any and all objections were pushed aside because people believed that owning a home proved to be a pretty healthy “investment.” Many homeowners saw their properties appreciate to the point where they could take cash out and/or sell for a nice profit. This, of course, all changed in 2008 when the housing bubble burst.

With apologies to our friends in the housing and mortgage industries, your home is not the greatest investment you will ever make in your life. Consider this: from the mid-1800s to the early 1990s, housing prices barely beat the long-term annual inflation rate (slight over three percent). Then, from the mid-1990s through mid-2000s, prices took a sudden spike upwards. Simply put, we stopped making money by making “things” in this country and started making money by selling our houses to each other!

Unfortunately, too many people still view home ownership through a pre-2008 investment lens in which a home is an “investment.” On the contrary, the Simply Money Point is that a home should be viewed as an “expense” only. So how can you tell if you’re ready to own? First, crunch the numbers. After all taxes, fees, mortgage payments, and miscellaneous costs are included, can you afford to buy a house using a 15-year mortgage? Second, from a lifestyle perspective, do you want to buy a house and be responsible for all that entails? Third, how long do you think you’ll be living in the home? In most cases it doesn’t make sense to buy if the time period is shorter than five years.

Home ownership is still an integral part of the American fabric that fosters communities and neighborhoods. But, the single most important factor when buying a home is doing it when you – not your family or friends – are ready.

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