To rent or buy. This is a topic swirling among my 30-something friends and seems to be in constant discussion.
Based on a brief survey CandysDirt.com conducted on a group of 25 to 40 year olds, results showed that 25 to 30 year olds are significantly more likely to rent compared to any other age group surveyed. This information provided me with a resounding “duh.” This age group is made up primarily of college graduates and young adults just starting out. As one renter put it, I’m a “recent college graduate who makes below poverty level.” Which is shown by 40 percent of our renters paying less than $1,000 a month in rent.
Other reasons people choose to rent include:
- Lower-than-average rental rates
- Mobility, or plans to move for various reasons
- You are in an astoundingly expensive housing market such as Malibu or Breckenridge
The downsides of renting begin with the security deposit. Although most are returned after the contract has ended, it is out-of-pocket money. The yearly costs of rent and renter’s insurance also stack up the price. Opportunity costs can put renters behind when they eventually go for their first home purchase since they haven’t been building credit and investing in a property.
But what about FHA loans? Won’t that help renters get some momentum with the more conventional loan process? Yes and no. Down payments with a FHA can be as high as 10 percent, which is still difficult for our under 35 group. These loans also prove more difficult when it comes to choosing a home for purchase. The limitations on the maximum purchase price have made it more difficult for some buyers to even qualify in more expensive housing markets, or highly sought-after ones such as the Park Cities.
According to our survey, 35-40 year olds are twice as likely to buy rather than rent, that is, if they can qualify for a loan. September 2013 data from Zillow, reports that three out of 10 Americans are unlikely to qualify for mortgages. Typically, the better mortgage rates are kept for borrowers with credit scores of 740 or higher. Only around 40 percent of Americans fall into that category.
On the flip-side, if you’re able to secure a mortgage and purchase your home, the yearly costs, including maintenance and improvement, can be substantial. Wait, you have a new job and need to move? Now to sell your home. People who use a Realtor will pay as much as 10 percent of the selling price in costs associated with selling. Let’s add on the cost of the inspection and a pre-sale facelift. Have out your calculator? Relocation costs, and exactly how long will you be sitting on that home of yours?
Regardless of age, 55 percent of those surveyed are putting their money into a home as an investment rather than renting. Owning provides more stability and an opportunity to accrue equity. Of those surveyed, most responded that they would rather put their time and money into a home that is theirs. An obvious conclusion. As a 30-something myself, I am not at all surprised by the narrow gap. Renting provides more flexibility for entrepreneurs, families with small children, and frequent travellers or jet-setters.
Renting may seem to be a waste of money to some, but there can be lower maintenance required as well as a welcome tax break. With loan qualifications like they are, some would love to buy but just aren’t able to. Renting becomes one of the only option and also requires less commitment.
Of course, you could always move in with your parents …
Candace Tharp is a real estate-obsessed former food writer who has blogged about tacos, cupcakes, and haute cuisine before joining the team at CandysDirt.com. Have an interesting story to share? Contact her at firstname.lastname@example.org.