Tuesday, September 1, 2015

Own vs. Rent - Why is it a financial decision?

Own vs. Rent – Why is it a financial decision?

As the real estate markets continue to recover, I read with fascination those reports touting that renting may be a better financial decision than buying, or vice versa, based on the dynamics of various MSAs and sub-markets.  The entire focus is on the cost effectiveness side of the equation. 

This type of cold-blooded financial analysis saddens me.  I have often considered buying a house as a process similar to buying art.  Buy it because you like it, because it makes you feel good, because it is a representation of who you are.  That does not mean that economics have no place at the decision table.  However, to boil down the process to a pure dollars and sense analysis misses the true point of buying a house.  At the end of the day, you should buy or rent based on the dynamics of where you want to live.  Is it close to schools and shopping?  Are you comfortable with your commute?  Do you like the neighborhood? 

While these choices are the same regardless of buying or renting, there is one other factor that is not the same.  How long do you plan on living there?  Renting is a more transient form of accommodation that owning.  You are usually not putting down permanent roots.  Even if an upwardly mobile family will only stay in the same home for 5 – 7 years, you usually do not find renters staying in the same apartment for such a long length of time. 

Whether people will admit it or not, everyone has a social impact to the community in which they live.  If you rent, you are more likely to have a short term perspective.  As such, you may not care to contribute as much of your time or resources to the growth and vitality of your community.  And, at the end of the day, isn’t that the real reason why we choose where to live?  When you ask someone where they live, how often do they identify themselves with their dwelling versus their neighborhood?   

If you feel a sense of permanence in your residence, you are more apt to take a larger interest in the growth of your community.  By extrapolation, if you find that you are invested in your community, won’t that, in turn, strengthen the neighborhood values, resulting in capital appreciation to your home?  I know I am turning my argument into a financial case, but if analysts are going to truly compare the rent versus buy decision, shouldn’t this factor into the equation? 

We always have financial choices in everything we do.  And, as a home is usually the largest purchase a family will ever make, costs play a huge role in the decision process.  However, let’s recognize that the buy versus rent decision is so much more than just a pure financial choice.  It is a life statement.  In an apartment, you keep the boxes for the next move.  In a home, you leave them at the curb for recycling.  What is your choice?

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328