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As a real estate agent, I believe that in most circumstances, buying makes more sense than renting, assuming you can afford it. However, no one-size fits all solution exists. So I thought it might be useful to examine the pros and cons of each. My list is by no means exhaustive, but I hope I’ve hit the major points.

Renting

Pros

1. Greater flexibility (potentially) to move: If you are considering moving and can either time a move to coincide with the end of a lease or break the lease/sublet without significant financial impact, it is easier to rent a different place than to go through the process of selling a house. (However, if there are several months left on the lease, unless you can afford to pay the rest out, you may be stuck til the end of the lease.) There are also no fees involved (other than moving your things)–no closing costs or real estate fees. If you are not sure where you want to live, renting makes sense.
2. Less expensive up-front costs: When you rent, you don’t have a large downpayment, like you do when you buy. In some areas, you may have a broker fee, application/credit check fee, and you often have to pay the first couple of months’ of rent up-front. Those costs are much less than a downpayment, though.
3. Tenants are not responsible for major maintenance costs: When you rent, you don’t need to worry about things like putting on a new roof, trimming trees, replacing an old boiler, etc.).

Cons

1. Renting doesn’t let you build equity: The most often cited reason for not renting is that you’re “throwing money away”. The money you pay in rent, no matter how many years you pay, is never recouped.
2. Length of your tenancy: You can’t necessarily count on being able to stay in your rental indefinitely. A landlord doesn’t have to renew your lease. He might decide to sell the property, for example.
3. Rent increases: Rents normally go up every year. So what you pay in rent this year is very likely to be appreciably less than what you’ll be paying five years down the road. While a monthly mortgage payment may go up a little bit to cover any tax increases on the property, it otherwise stays the same for the life of the mortgage, which is often 30 years. (Note: some people tout not having to pay taxes as an advantage of renting. I’d argue that the tenant does pay them as the rent amount will include enough to cover taxes.)
4. Repairs: You are dependent on the landlord to address needed repairs in a timely fashion. You also have no power to ensure they are done the way you would do them.
5. Rules and restrictions: Sometimes, there are rules like “no pets” that tenants must obey.
6. Limited personalization: You can’t put as personal a stamp on a rental property as you can’t make any changes/updates the way you could if you owned it. In some cases, a landlord might allow you to paint or put in new blinds or replace light fixtures, but, remember: once you leave that property, any value due to those improvements does not benefit you financially. It will only benefit the landlord if he can charge more to the next tenant.
7. Privacy compromises: Keep in mind that the landlord has the right to enter the property (with notice) for a handful of reasons.
8. No tax benefits: When you own your own home, there are certain tax write-offs you are entitled to.

Owning

Pros

1. Equity: As you continue to pay down the principal on your mortgage, you own more of the property. That means that when you sell, more of the purchase price goes into your pocket (vs. going to the bank to pay off the mortgage). You may also choose to use equity as collateral in a home equity loan, which can finance
2. Stability: When you own your home, you are in control of deciding if and when you move. (Of course, a change in finances or life situation which may force you to move could happen the same way if you were renting. However, due to having built equity, if you did have to sell, you’d probably be in a better financial situation as an owner than renter.)
3. Repairs: As an owner, you can decide which repairs/renovations to do when.
4. Personalization: Not only can you decorate as you wish, but you can landscape and make improvements/updated that reflect your taste, lifestyle and budget. (Note: think carefully about how to make updates that will appeal to a wide buyer pool if/when you sell in order to get a good return on your investment; overly stylized changes to a home may actually lower its value.)
5. Appreciation: Real estate usually appreciates over time, which means the value of your property increases.
6. Tax Benefits: Home owners may benefit from tax deductions on mortgage interest and property taxes. Laws surrounding these benefits change often, so be sure to check exactly what you’d be entitled to.

Cons

1. High upfront costs: Buying a home requires a significant down payment as well as closing costs and other fees which don’t go toward equity building.
2. Maintenance and repairs: When you own your home, you are responsible for all maintenance and repairs, which can be costly and time-consuming.
3. Less flexibility (potentially): The process of getting a home ready to sell, marketing it, getting through the time between contract and settlement AND finding and purchasing a new house can take several months. That said, if you decide you want to move when you are three months into a twelve-month lease, unless you can pay out the lease or sublet, you may not be able to afford to move until that lease ends. So, depending on the situation, you may have greater or less flexibility as an owner than a renter.
4. Market Risk: While, especially over longer periods, real estate values tend to increase, it is possibly that the value of a property decreases. In that unfortunate scenario, if an owner did need to sell at a time when the value was less than what it was when it was purchased, the owner could have a loss. (Remember, though, that if a significant portion of the original loan has been paid off, the seller could still come out even or make a little money due to equity owned.)
5. Property Taxes and Insurance: As I stated earlier in this post, while home owners do need to pay taxes (and home owner’s insurance), those costs are built into the monthly rent, so, in essence, renters are paying for those just like owners are.

There are clearly advantages and disadvantages to both owning and renting. It’s vital to carefully consider both your financial situation  and the likelihood that you will want to remain in the area (or in a certain kind of dwelling) before deciding whether to rent or buy. I’d recommend comparing expected costs over a few different periods of time to help you home in on the best plan.

If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973

Don’t home inspections happen prior to settlement?

Historically, home inspection contingencies were standard when buyers were writing offers to purchase homes. The purpose: to discover any surprise problems and either terminate the contract or negotiate with the sellers for repairs or a monetary credit. However, due to the current low inventory and high buyer demand for homes, competitive bids often waive the home inspection contingency. If the seller has NOT done a pre-listing inspection, you should seriously consider having one done once you settle on the house.

Why bother with a post-settlement inspection?

Some might argue that it’s a waste of time to have an inspection once you’ve already closed on the house as, at that point, you can neither “return” the house, nor have any leverage as far as convincing the seller to cover any repair costs. While accurate, it’s still a very good idea to know if there are any significant problems that should be addressed. An inspector looks for material defects (systems or parts of the house not operating as intended). What if there is a structural problem? Or something in the electrical panel that is dangerous? Perhaps a leak from the waste line in the basement or windows that don’t lock? You may choose not to fix every item an inspector points out, but at least you’ll know what the concerns are.

What else does can an inspector tell me?

If you have a good inspector and you ask the right questions, you can make the most of an inspection.

• Price estimates: While an inspector can’t quote you an exact amount for a specific repair/replacement, most can usually suggest a range. Having a rought idea of what the costs are associated with problems you plan to fix is extraordinarily helpful.
• Priorities: If you ask, most inspectors can tell you which repairs should take priority, vs. which things might be able to wait for a couple of years before truly requiring serious attention.
• Age of systems/life expectancies Inspectors will tell you how old your HVAC components are (boiler/furnace/air conditioning) as well as how old the hot water heater is and they can usually give an estimate for the age of the roof. This information allows you to plan and budget, especially when considered in light of the priority list (above).
• How things work: Inspectors will usually be willing to show you the basics of how the systems work. For example, they will demonstrate how to replace the filter in a furnace, explain the concept of “bleeding” a radiator, tell you what to look for if you suspect a leak, show you how the thermostat works, etc. They will not give a full-blown tutorial, but typically provide enough information so that you have a starting point.

What should I do with the report?

Once you review the report and determine which things you may want to address, you may want to have qualified contractors come take a look and give you a clearer picture/estimate. This step may help you prioritize projects. Having the report (including the photographs the inspector takes) can make it easier for service people to give estimates, sometimes without even having to come out for a service call (which can save you money). My advice would be to save the report if you ever need to refresh your memory about the inspector’s findings. Obviously, a report is only a “snapshot” from the day it was done. Over time, as the house ages, new issues may come up and systems will wear out. So the report, by definition, will become outdated. That said, while new issues will arise, anything that was defective that you have not taken care of certainly isn’t going to magically fix itself. So that’s why I recommend keeping the report to look back on in case you forget about something that you might want to address. On a separate note, you may even decide to have a home inspection done at some point in the future, like after you’ve been in the house 10 years. You could think of it like going to the doctor for a check up, just to make sure everything is working as expected.

If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973

What should I look for?

Some home buyers look for a “starter” home–one that will be in the budget today, but that they expect to outgrow (or otherwise want to move up from) fairly soon. On average, people stay in those houses around six years before looking to move. Other house hunters are looking for a “forever”, or at least very long-term, home. If you wonder how you would make that decision, consider the pros and cons of each type of house.

Starter Home

Starter homes tend to be smaller, more modest and often less appealing as far as location, lot size, school district, amenities and sometimes condition than forever homes. By definition, most people who identify their search as one for a starter home don’t expect to stay in it long-term. Why might someone look for a home they don’t plan to stay in?

Advantages

1. Starter homes are typically more affordable. Buyers who can’t yet afford what they might consider a forever home can still own a house if they purchase a starter home.
2. With a lower mortgage, the buyers’ financial risk is reduced, in case unexpected expenses arise. This fact is especially important for younger people who sometimes don’t figure in all of the maintenance and other (often hidden) expenses of home ownership.
3. Another financial advantage is the ability to build equity–with a manageable payment, people who purchase starter homes can  build equity (by paying the mortgage down and because real estate tends to increase in value over time) which converts to cash upon the sale of the house. This money can be used to help them purchase the next house, or for anything else they need it for.
4. Starter homes, since they have a lower mortgage, allow for greater flexibility in the event the owners want to move or have a job change. They are also usually easily saleable as there are always first-time home buyers who are looking for starter homes.
5. Starter homes can be a great teaching tool–they can help buyers determine what actually does and does not matter in a home and property. Sometimes, things people think are really vital end up not being all that important, like a garage, for example. Similarly, there may be things, like a finished basement, that might not have seemed important, but now becomes a must-have.

Disadvantages

1. Starter homes are usually small. If your family grows, or you need work-from-home space or an area for hobbies or other specialized activities, you may feel cramped.
2. Moving is expensive. Not only are closing costs (here in Pennsylvania) high, but you have moving trucks, time off of work and other costs.
3. Moving is disruptive. No one likes moving and if you have kids in schools that will change with a move, you need to consider whether that change is major or minor.
4. You may see lower appreciation in a starter home if it’s in a less desirable area or has certain features (like very limited closet space, for example) that are hard to overcome/change.
5. If you’ve put money into updating the property, the return on your investment may be financially negative if you don’t stay in the house long.
6. Creating community can be hard if you feel like you won’t be staying in the neighborhood. If you are hoping to establish roots and deep relationships with neighbors and people who use the same gym/day care, etc., recognize that those friendships may be hard to maintain if you don’t live nearby.
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Long-Term Home

Many people are looking for something they plan to stay in for many years. Often, though not always, these are people who have owned a home previously and have reached a life stage where they have a clearer picture of the future–income expectancy, family size, where they ultimately want to be, etc. Here are some of the pros and cons of purchasing what is expected to be a long-term home.

Advantages

1. More space is often the most obvious difference between starter and long-term homes. Extra room is a luxury which can be used for storage, a growing family, hosting guests, and potentially even housing an aging parent. That extra interior space is often mirrored outside–more room for a dog or kids who want to play oustide.
2. It’s usually less of a financial risk to make updates and improvements to a house you expect to stay in. You can worry less about resale value, since the expectation is that you will live in the house for a long time and benefit from the improvements. For the same reason, you can customize them to your specific needs and taste with less worry about how someone else will like them when you sell the house, since that probably will be many years away.
3. Houses in more desirable neighborhoods (which is normally where people look for long-term homes) tend to appreciate more, so investing in these properties is usually a wiser financial move.
4. Remaining in a neighborhood for a long time increases the likelihood of making lasting connections in the community, vs. moving after a few years.

Disadvantages

1. Long-term homes are usually more expensive, requiring a larger down payment, higher closing costs and more substantial mortgage payments.
2. With a larger mortgage, and more cash/savings being spent on the purchase, the financial risk is greater in the event of a change in financial status.
3. Due to the financial constraints of a more expensive home, you will have less flexibility if your circumstances change as far as selling/moving.
4. Larger homes often require more maintenance and upkeep, particularly in an area where most of the housing stock is older. So keeping the trees trimmed, the driveway sealed, replacing windows, updating HVAC systems, replacing roofs, remodeling bathrooms–all of these projects are expensive.
5. Sometimes, the things that are important to buyers in a property/community change over time, and if you determine the neighborhood is not what you expected or no longer suits you, you have a lot more invested financially than if you’d purchased a more modest home. So it’s important, if looking for a “forever” home, that you feel confident it will be a good fit for many years, not just for now.

Obviously, there is no right or wrong answer as far as whether you should look for a starter vs. a longer-term home. It depends on your current and (future expected) financial situation, how clear you are on what kind of home and neighborhood you will want not just now, but 15+ years from now, how predictable or unpredictable your future is (how likely job changes are, whether it’s probable you might want to move to be closer to family members, etc.) and other lifestyle factors. Consider your priorities and how each option aligns with your goals.

If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973