The first question to ask when it comes to renting or buying is, “What can I afford?”
Homeownership in America is at a five-decade low, and for many early-career professionals, the high cost of homeownership is still the main reason for renting. A recent survey from Fannie Mae found that 76% of young renters think owning makes more financial sense, but say their insufficient credit history and difficulty with affording a down payment are obstacles to getting a mortgage.
But is this delay in homebuying as much of a doom-and-gloom scenario as we’re inclined to think? Our implicit assumptions about homeownership as a good investment may be skewing our perception.
Nick Gross, vice president of sales at New York–based brokerage TripleMint, says if you can afford it, buying a home is a smarter financial decision than renting. Your purchase will most likely appreciate over time, build equity, and protect you from rent spikes.
But contrary to Lynch’s advice 25 years ago, homeownership may not be the best investment for everyone, and it shouldn’t be a blind goal. In fact, a 2014 study from HelloWallet found that more than half of current homeowners would have been better off financially if they had rented and invested instead of bought.
Our analysis of Earnest applicants shows that homebuying is particularly delayed in high-cost metro areas—even with higher incomes, young professionals wait longer to buy in cities like San Jose, San Francisco and New York. Earnest Blog
“Some people see their money as more valuable invested in another way,” Gross says. “Very few of [my clients] rent because they don’t want to be attached—they do it because they can use their money in a better way, or they have an interest in something else. It’s a question of your life goals.”
He references a client who sold her apartment in New York City in favor of investing in a rare cello, and another who chose to buy real estate in Philadelphia while renting in New York himself. “In New York, the average homeowner owns for under seven years,” Gross says. “What’s good for you now may not be good for your [partner or family] in five years.”
Depending on where you live and how long you plan to stay, additional costs like home maintenance, taxes, insurance, and more may point to renting as a smarter financial move—as long as you focus on other ways to build wealth.