Deciding whether to Rent versus Buy - The Non-Financial Factors that you Can't Ignore

a family friend’s house & garden in belgium

Rent versus Buy

This is one of the more common dilemmas that we evaluate with clients.  Everyone is eager to dive into the numbers, but the numbers are the easy part.

The non-financial factors to consider before deciding whether to buy or rent.

(1) What is the probability that you will be in this same location in 2-5 years?

The shorter the time horizon, the stronger the case for renting. Nobody can consistently predict what the real estate market will do in the short term. If you decide to buy and find yourself moving shortly afterward, you take the risk of losing money on the property when you sell. Unless you are okay with that risk (or the idea of renting if needed versus selling), keep it simple and continue to rent.

(2) How stable is your job and career?

If you have a stable job (or you can find another job easily in the same area), you can likely manage the added risk that comes with owning a home.

Others, however, know that they are at the top of the payscale and worry about their current employer’s future. Or maybe they are working at the only place in town that could employ their skillset. If they lose their job, they will have to move. For this latter half, renting may be worth it for the flexibility.

(3) Do you want to spend your free time keeping a house and yard up?

Even if you buy a house that is mostly done, there will be projects. If you are the type of person who enjoys that, you may love homeownership and the ability to customize your living space and learn new skills.

Others prefer being able to call the landlord with issues and having someone else responsible for fixing (and paying for) the problem.  

(4) Do you value stability above all else?

Many people love renting until the landlord decides to sell their house, leaving them scrambling for a new place. Children and pets add a new layer to this challenge. You may prioritize keeping your children in a particular school district with their same friends. For that reason, buying a home may outweigh uncertainty in other areas of your life.

The numbers are essential – you have to see how a house purchase impacts your financial goals – but it is only one piece of the puzzle. Honest conversations about how long you plan to live somewhere, how invested you are in an area, and how much time you have to commit to house projects can help you solidify the best choice for you.

originally published 10/28/2014

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Renting vs Buying - Which is the better financial decision?

The New York Times Your Money column had a timely article on renting versus buying by Tara Siegel Bernard. She interviewed a couple who are renting, by choice, in southern California due to high home prices in the area. She also interviewed a few financial professionals in the article. In summary, they agreed on the following: 1) In the short-term, no one can predict what the real estate market will do on a consistent basis. Therefore, if you are planning to live somewhere for just a few years and have no interest in being a landlord, it is better to rent.

2) If you plan to live in a place for 5+ years, buying may be the better investment, but it depends on the assumptions (time horizon, tax bracket, risk tolerance, etc).

3) While the research supports that buying a home isn't necessarily always a good investment, it disregards the non-financial benefits of owning (such as stability) and it assumes that you are disciplined with your money in terms of saving and investing.

4) When left to our own devices, many of us don't save as much as we can afford. If you are one of those people, a forced savings plan, like a mortgage payment, can be a good thing.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.

Buying Raw Land

Purchasing raw land is different than purchasing a property with a house already on it. While it can be appealing to start with a blank slate, it can also come with a lot of frustrations if you are not prepared. Here are some tips:

1)   Learn as much about the property as possible.

Look at SunCalc.net to get an idea of the property’s sun exposure throughout different times of the year. Review the USDA soil maps here to understand the type of soil on your land and surrounding properties. Speak with neighbors about the property to get their opinion.

2)   Find a friend or real estate agent with a lot of experience.

You need someone who is familiar with the zoning laws, rules and restrictions unique to the area. You also want to make sure there are no easements and nothing preventing you from doing what you want to do with the land (such as build a home or farm).

3)   Understand that you have different loan options

While many people put 20% down on their primary residences, land loans may require 30% or more. They also have a higher interest rate than your typical mortgage loan because vacant land is considered riskier.

4)   Getting water and utilities can be expensive.

If you are purchasing land in a rural area, you will need to get clear on the logistics of getting water and utilities to your property. For water, you may need to drill a well. The cost associated with this will depend on how deep they have to drill and the type of soil. A "perc test" will determine if a septic system can be installed in an appropriate location.

Purchasing land requires a lot of due diligence to make sure it doesn’t become a money pit. Even with asking all the right questions, there can be surprises. Planning ahead and working with trusted professionals can make the process go smoothly.

Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.

Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.