Rent vs. Buy: Discussing the Age-Old Question with Local Loan Officer Stuart Broughton
All prospective homebuyers have asked the question before: is it time to buy or should I keep renting?
The leap to homeownership is a big one and you want to get it right. And this question is even more relevant in the current real estate market where high interest rates are making it significantly it more expensive to purchase a home.
Here’s his advice on what to consider and how the current real estate market impacts the decision to rent or to buy.
What are your thoughts on renting vs. buying in general?
In general, buying over renting has a number of advantages. You are, of course, building equity with your monthly payments. But there are other benefits to it too, including:
- Appreciation as your property value goes up
- Tax benefits
- Insurance write-offs
Simply put, on a fundamental level, when you buy a property, you’re putting money into your own pocket and building your own equity. But when you’re renting a property, it’s a sunk cost every month—you’ll never see that money again.
So, if your finances permit and if it makes sense for your own unique situation, you’re better off putting that money—even if it’s more expensive monthly—back in your pocket and not paying it all the way to the landlord.
How does that change in the current real estate environment?
The current high-interest market does make the costs of owning a home more expensive. But you can still look at how the numbers pencil out.
Let’s say you buy a home for $800,000 in Sonoma County and put 20% down.
Your monthly payments, including tax, insurance, principal, and interest, may be, for example, $5,000. And it’s possible that you could rent that same place for, say, $4,100/month.
Some may look at that and say that by renting, they’re saving almost $1,000 a month.
But that doesn’t account for the fact that you are not building equity or tapping into the other advantages of homeownership like writing off interest or tax breaks.
Also, there’s an opportunity to refinance your mortgage in a few years when, hopefully, interest rates are lower. That will bring your monthly payments down and you will continue to build equity and take advantage of appreciation in the long run.
But because those interest rates are high now, making monthly mortgage payments higher, it is true that the math isn’t as overwhelmingly on the side of buying as it has been for a long time.
That said, I still believe there are benefits that make it worth it.
How can someone determine if they’re ready to buy a home or if they should keep renting?
Well, you can start by looking at your current situation. If you have cheap rent and are currently saving a lot of money, it’s definitely not a bad idea to stick with that until rates drop.
Let’s say you have a rent-controlled apartment or you still live with family and you can continue building your savings.
In this case, it’s not a bad idea to stay where you are and save money to get yourself in a better position to buy a home in a few years.
As you’re saving money, you can see what is happening with the interest rates, inventory, pressure on the market, and that kind of stuff. You are not likely going to miss out on a fortune of appreciation for a couple of years and saving up some more money can put you in a better financial position.
If you don’t have cheap rent to really put aside a lot of money and you’re in a position to purchase a home, then it still might make sense to do so, even given current rates.
The key is to work with qualified professionals, like choosing the right loan officer, to help determine what you need and can afford. They can help make sure the math works out in your favor.
What else should potential homebuyers consider in the current market?
Another option is to consider purchasing a two- or three-unit home and renting part of it out to someone else. Having some rental income can help offset the cost of your mortgage. Sometimes you can put just 5% down and then depending on what kind of rent you can get, it may be a good financial decision to be a landlord and start building a portfolio of real estate.
How do pre-construction homes factor into this conversation?
Buying a pre-sale home is a great option in the rent vs. buy scenario. You can purchase a home at a fixed price, but you won’t have to take on a mortgage until construction is completed.
This means you can get your foot in the real estate market, but you can also wait until mortgage rates drop, which we expect them to do.
This also means you might have time to continue saving money or getting your finances in order before you have to take on your mortgage.
You may have to keep paying rent in the meantime, but ideally, the property value will go up and you’ll able to offset some of the rent you paid while you waited for the home to complete.
Learn more about Sonoma County’s best presale homebuying opportunity.
If you’re interested in purchasing a home in Sonoma County, SOMO Village might be the perfect community for you. Download our project brief to find out why.
About Stuart Broughton:
Stuart Broughton has over 25 years of lending experience, adapting to the changes and challenges in the current mortgage industry. He and his team, The Broughton Team, work locally in Sonoma County to offer clients the best financing options possible. They are committed to closing your home financing loan as quickly as 15 days, often outperforming cash offers.
Stuart and his team take pride in offering impeccable communication and are available seven days a week for immediate assistance at any point in the process. You can contact him on LinkedIn or through GoRascal Inc.