Should you keep renting, or should you buy a home? It’s an age-old dilemma nearly every American adult wrestles with at some point. No one wants to throw their hard-earned cash away on rent payments they’ll never see again when they could be investing in a home that will grow in value and potentially provide a nice return one day.
If the above line of thinking sounds familiar, Todd Sinai, a real-estate professor at the Wharton School of the University of Pennsylvania, would like to stop you right there.
The comments above and below are excerpts from an article by Todd Sinai (ToddSinai.com) which may have been enhanced – edited ([ ]) and abridged (…) – by munKNEE.com (Your Key to Making Money!) to provide you with a faster & easier read. Register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner.)
A number of crucial factors go into the rent-versus-buy equation — myriad calculators exist for just this purpose — but a house’s potential return on investment shouldn’t be your focus. In fact, you shouldn’t think of it as an investment at all, according to Sinai…
- Housing is a consumption decision, not an investment decision, Sinai said. The amount you pay for housing should comport with your needs, goals, and budget, regardless of housing market trends and potential growth in home value.
- If what you’re spending each month on housing jumps when you move from renting to owning, that’s not necessarily a wise financial move just because you’re getting equity. You need to make sure the additional space and amenities you’re consuming are worthwhile expenditures on their own merits, not for the theoretical payout they might afford later…
Let’s say you time your local market correctly and home prices rise after you buy. If you decide to sell that home, you’ll still need a place to live, and you’re buying in that same market with expensive home prices unless you go back to renting. Moreover, the process of buying and selling a house is expensive. The taxes, fees, and closing costs you’ll pay when you buy and sell that home eat into any profits you reap…
If you want to make an investment in housing, Sinai says you’re better off doing it in the markets — such as buying shares in a real estate investment trust or an exchange-traded fund.
For buying your own home, just ensure it will match your needs for many years to come, independent of what happens in the markets.
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