Should I Buy a House or Keep Renting?
This is one of the 21 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance.
This is one of the 21 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance. Use the drop-down menu above to consider other financial conundrums and the right answers for you; share your own experiences and insights in the Discuss field at the bottom of this page.
Keep your rental if you love your footloose lifestyle (let the landlord take care of it!) or if you need time to save for a down payment or to improve your credit history. You should also put off the purchase decision if you can’t commit to staying in a home for at least five years—say, because you might want a bigger place for a growing family or you may move for a job. You would need that long to break even, given uncertainties about the direction of home prices and the transaction costs when you sell.
Buy soon if you plan to stay put for at least five years, you have the cash for a down payment and you don’t have to stretch to make payments. If you’re worried that home prices in your area may go lower, make a rough estimate of your city’s price-rent ratio: Divide the average list price of several homes that meet your criteria by the average annual rent of several places with the same number of bedrooms and comparable amenities. In general, if your market’s ratio is less than 15, you can start house-hunting with confidence; if the ratio is 15 to 20, be cautious; and if it’s over 20, stick with renting.