Do you want to invest in real estate right now or are you willing to rent for a bit?
I was talking to a friend of a friend the other day. He was just informed that his parents were moving out of town and that he would be on his own. After putting much thought into he decided that he wanted to move in with his long-term girlfriend. Instead of renting for a bit they have opted to buy a property right away. That’s their decision and whatever they decide to do is up to them. The only problem is that they only have $30,000 saved in total and an average home in the city costs $300,000.
I don’t give out unsolicited advice. Since they asked for it I told them exactly what they needed to know. The first reality is that the $30,000 won’t all go towards the downpayment. They need to factor in some of the many costs that go along with home ownership:
- Lawyer fees.
- Real estate agent costs.
- Closing costs.
- Property taxes.
- I could go on a bit more.
The next issue is that they won’t even be able to put down 10% of a mortgage downpayment on their first home. Chances are that they will have a difficult time trying to get approved. If they do get approved they will have to pay mortgage insurance. Then there’s the issue of increase in consumption. Long story short, I suggest that they consider renting until they save up more money to put down a larger downpayment on the property. They weren’t too pleased with this information. I felt that I had to tell them the trust since they asked for it.
I really wanted to look at the idea of why everyone wants to buy a home right away instead of renting for a bit. After much research I came up with the following results.
Buying a home feels like the next logical step.
It just feels like we have to buy a home. You know the deal. Once you finish college and find a decent paying gig, you need to buy a property. This is just ingrained into us and we feel that buying property is what we have to do next.
What I try to stress is that buying a home isn’t the next step. You don’t have to buy a home if you’re not ready yet financially.
Renting has a negative stigma.
For some reason renting sounds low end. There’s just an intoxicating feeling that comes along with bragging to our peers about how we own property. We want to brag about our home that we own instead of telling someone that we rent. That’s just the way we are.
We don’t want to “throw money away.”
We all think that renting is throwing money away. That’s like saying that food is a waste of money. That’s like saying that a vacation is a waste of money. You’re paying for shelter when you rent a home. Would you rather be on the streets or living with your parents?
Don’t even get me started on the theory of “throwing money away,” because with a home you need to pay for insurance, property taxes, and all sorts of fees that you’ll never see again. Renting is not throwing anything away. You actually increase your flexibility by renting. Your finances and your life isn’t tied down to one location.
Where do you stand? Do you want to buy right away or are you willing to wait it out while you rent a place out?
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