REAL ESTATE

Buying vs Renting

As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), and several previous blogs, the purchase of a home may be one of the biggest decisions, and investments, to make in one’s lifetime. Over the last few years, it has never been more difficult for young buyers, with rising inflation, property prices, and property taxes/insurance, and the situation appears to be only getting worse, with an increasing number of defaults and loans coming due.

      In current conditions as we have entered 2026, home prices remain elevated in many geographical areas, as sellers remain stubborn, though there are parts of the country, and globe, that have seen some reduction.

      As a result, for many potential buyers, the question persists on whether to buy or rent, even for those who can afford to buy. Of course, there are advantages to both, and it can depend on your personal financial situation, but let us review the current positives and negatives from both perspectives, regarding several categories…

      Buying a residential unit in current market conditions has become very difficult, especially for those who are not purchasing with cash.

·       Down Payments – With the average home now exceeding $400,000 in many locations, a 10 % down payment would require $40,000 to secure the loan, plus closing costs, which generally averages approximately $4 – 5,000 in additional up-front funds. Although there are many programs promoting “No Money Down” or 3% (or less) initial down payments, it may not be in the best interest of a potential buyer to utilize this type of loan. They are usually accompanied by higher interest rates or additional requirements including mortgage protection insurance. The minimal requirement to forego this insurance is a 20% down payment, which would require $80,000 for this same home.

·       Payment Schedules – Most mortgages are set up in what is known as an Amortization schedule, in which the lender collects the most interest, and least principle, from the very first payment. Many also include the quarterly property taxes, spread evenly over 12 months, as well as any mortgage insurance. A mortgage of $2,500 per month can easily start with only $300-$400 in principle being subtracted from the purchase price, and the mortgage does not include utilities, repairs, and extras. In the event of non-payment of the mortgage, or taxes, the property can be foreclosed by the lender or collector, which could result in the total loss of the property and down payment. These factors need to be heavily weighed when considering a purchase.

·       Repairs – Home ownership is accompanied by many repairs, upgrades, maintenance, and systems replacements throughout the life of a mortgage, which cannot be ignored when considering whether to buy or rent. These are NOT part of the mortgage, property tax, utilities costs, and insurance mentioned above, and are the sole responsibility of the owner, unless any warranties exist. Once the inspection is performed, and accepted by both parties, you are on your own.

·       Equity – Of course, when one owns a property, in theory, any principle paid can be considered equity, so long as the property does not decrease in market value. This is one of the main reasons that individuals purchase property, especially if they plan to stay for many years. However, equity takes time to build, when considering the amortized mortgage mentioned above, and the amount of down payment. Also, the longer it takes to fully satisfy the mortgage (the longer it takes, the more interest paid), and subtracting the annual property tax, maintenance, insurance, and taxes, the equity can be a lot less than one might hope. Finally, if one plans to sell within a shorter time frame, remember that another purchase will start the amortization schedule all over again, and market prices are usually relative, unless downsizing or moving to another geographical area.

·       Interest Rates – Interest rates not only play a role in the purchase of a property, but also when re-financing and/or selling. During the initial purchase, the interest rate will set the amount of the monthly mortgage. There are programs that allow for a lower introductory rate for the first year of a mortgage, but review carefully how it gets adjusted after that period. Variable rates can be dangerous, especially if the amount of equity is low. A loan re-finance is always possible in the future, but do NOT depend on rates declining, and a re-finance will likely reset the amortization schedule back to the beginning, as discussed in last month’s Real Estate – Re-Finance Obstacles blog, dated 12-15-26.

·       Credit – During the repayment process of all loans, individual credit scores are affected both positively, and negatively, based on consistency of on-time or late payments, the amount of loans in one’s name, declines for credit application, and even balances due weighed against available credit (like credit cards). Keeping a high credit score is imperative to the possibilities of re-finance, future loans, and interest rate charges.

·       Taxes – Many properties have allowances for tax deductions on a portion of the interest paid in any given year, and there may also be further deductions allowed for an at-home business that is set up properly. Consult with a tax professional for specific information.

      Renting your domicile in current market conditions is a mixed bag, especially for those who                                 recently completed school or are beginning a new job, or both.

·       Down Payments – For a renter, this is known as the security deposit, which can equal up to the equivalent of 1 month’s rent (much cheaper than the purchase down payment). Many landlords also collect the first, and last, month’s rent prior to move in. Today, an average 1-bed, 700-800 square foot apartment will cost close to $2,000 per month (depending on location), sometimes without utilities, internet, cable, and/or amenities. Renting is still costly, though not nearly as much as a home.

·       Payment Schedules – Renters will generally pay one price every month and there is no principle involved. This makes the rent/lease essentially all interest, none of which is recoverable with any resale, unless there is a lease-to-own agreement. There are no separate property taxes (although they are usually figured in to the rent amount), and some utilities or extra amenities may be included. Rents are vulnerable to increases each year, and are subject to quicker eviction for non-payment, though the financial punishment may not be as severe.

·       Repairs – A renter is normally only responsible for general upkeep inside the dwelling, unless agreed to contractually at the beginning of a lease/rental. All improvements, systems replacements, regulatory obligations, and repairs such as plumbing, electrical, weather damage, appliances, etc. are the responsibility of the landlord, so long as the renter does not cause the damage. Maintenance including lawn care, painting, trash removal, and filter changes can be included, or negotiated, in the rent. In the case of a condominium or apartment complex, there may exist extra Home Owners Association (HOA) or amenities fees, which are additional costs added to the rent/lease.

·       Equity – Renters and leasers do not build equity in their homes, unless there is a lease-to-buy option in the agreement. In those instances, there may be a pre-set amount awarded toward the purchase price at a later date.

·       Interest Rates – Interest rates generally do not factor in to the rent or lease, unless the property mortgage itself is based on a variable rate. In that instance, rent may be raised if the bank rates rise, so be sure to cover that with the landlord prior to signing.

·       Credit – The same rules generally apply to those discussed above in the buying category. The renter is at a higher risk of an immediate change in housing, as a landlord can sell the property, raise the dues, or even give the tenant short notice that they need the property for a family member or change in usage. Credit availability should always be at the top of anyone’s list.

·       Taxes – Though there are no tax deductions for rentals, a portion of the unit may also be deductible for business purposes, so again be sure to consult a tax professional.

      To review, home ownership has become increasingly difficult for young and first-time buyers, without a large down payment and financial backing. The average age for first-time purchases has risen to 40, which is very discouraging. Living at home for longer is also on the rise, even among college graduates, as a means to better their financial situation (including paying down student loans and saving). Renting is a cheaper option that may suit some better in current market conditions. Either way, due your due diligence, dig deep into your current and future financial and employment situations, and plan accordingly with no emotional attachment.

      Please visit the website www.augustassociatesllc.com for home values, listings, and professional real estate assistance.

***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.