Rent vs. Buy as a New Real Estate Investor

Rent Vs Buy

We received a handful of emails over the holidays from our Rev N You with Real Estate Newsletter readers asking about
renting vs. owning. Here’s one of the emails and what I had to say:

Hello Julie and Dave,

I’m looking forward to your newsletters and appreciate the welcome
email.  This is the style of investing I hope to be doing in a
couple of years.  I do have an initial question though: buy or rent?

Allow me to elaborate.  I will be graduating with a software
engineering degree in April and will start work <company removed
for his privacy> in July.  I don’t want to throw money away on
renting, but will have next to nothing as a down payment initially.
I will be living with my long-term girlfriend who will be bringing
in some additional income as well.

What I am having a hard time deciding is when is the right point to
stop renting and buy my first place.  Once that happens we can
focus on improving our place and saving up for an investment
property.

So once again, rent or buy?  When do you make the switch?

Thanks again and I look forward to your newsletters.

Sincerely;
Ryan

Here’s my response to Ryan:

Hi Ryan,

Thanks for your email, and thank you for joining our Rev N You with
Real Estate readers!! We’re happy to have you in the group.

As for the Buy or Rent question you have… I think you’ve just
given me a new topic for our blog! I don’t think we’ve ever really
written about this subject.

The answer really is – it depends! It depends on your objectives,
it depends on how long you think you will be living in the city
you’re in right now, and of course, how much it costs to rent vs.
own in the city you’re in (lots of good tools online to help with
this: https://www.vancity.com/MyMoney/Tools/Calculators/RentvsBuy/ ).

Have you read Rich Dad Poor Dad? We credit Rich Dad Poor Dad with getting us started in real estate. (http://revnyou.com/March_22_2007_The_book_that_got_us_started.html)

Read the book. I think it will help you figure things out a bit.

Also, think about your objectives.

Our first purchase together was not a home… it was an investment. We both continued to rent our separate places at the time. The next place we purchased was for us to live in, but we bought the place
with the intentions of renting it out after a few years (and that
is what we did).

However, because it was to be our home first, we spent more money
on it than we would have if it was to be an investment property
from the beginning. There’s an emotional aspect involved in the
decision when you are going to live somewhere. Because we spent
more on the property than we had planned it didn’t quite cashflow
when we turned it into a rental.

That said – (in Canada) there are first time home buyers programs
that are worth taking advantage of. Talk to a mortgage broker or an
accountant about this. You may even find that you want to put your
name or your girlfriend’s name on your home purchase and then use
the other person’s name to buy the investment.You’ll have to think
about your objectives and then discuss your situation with a
professional to get the best advice though.

At the end of the day, I believe that a home is not an investment.
You can do the math on whether it’s better to rent or buy in the
area where you live, but really, buying a home is an emotional
decision you will make to achieve a desired lifestyle. It’s not a
bad thing, but just know that you will ALWAYS spend more money on a
home (whether it be the initial price or just the money you spend
on paint, furniture, finishings) than you would on an investment.

You’ll have to crunch some numbers and do some thinking to make the
decision about when and what to buy.

Hopefully this helps at least a little bit! All the best in 2009!

Regards,

Julie
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Search for Foreclosures Nationwide.

2 Comments

Filed under investing, real estate

2 responses to “Rent vs. Buy as a New Real Estate Investor

  1. wc

    Great post.

    I completely agree that a home is (usually) not an investment. Its appreciation is a happy side effect that one day you may take advantage of, if downsizing, for example. I say usually because I have rehab’d a few places that I called home at the time and later sold for decent profit. Each one I went into knowing that it was not going to be a permanent home, each one was a business venture first.

    People have been brainwashed into believing that home ownership is the ultimate investment. There is no shame in renting, but even credit applications propagate the stigma of renting; “do you own or rent?” When the reality is that it may be more financially beneficial to rent.

  2. @ wc – Thanks for stopping in and for your comment!

    And I appreciate your point about renting – there is absolutely no shame in renting. One of our early real estate mentors owned 100’s of units, but rented a furnished apartment. He liked renting because it was cheaper than a mortgage (leaving him more cash for buying properties that made him money) and someone else had to fix the problems that came up in his home.

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