Renting vs. buying is always a complicated choice, and the answer is never as clear cut as "renting is throwing away money" and "owning is always a stable investment".
Having just graduated college, and not knowing exactly what your future holds as far as employment (unless you actually do), then renting seems like the best choice. Why pay closing costs and a down payment on something that you may not stay in, or may even need to move in a few months because of a new job offer? After I graduated college, I went out on tour for seven years. When I was done, and decided to move to Atlanta, I chose to rent to make sure that it was where I wanted to be while I tried to settle myself into my career. This left the option open that if I started to get a lot of work, but that work was mostly in New York, I could make the move if I needed to without dealing with the hassle of selling a house I had owned for only six months.
Now comes the other side of the coin. After becoming established, we decided to buy. We found a neighborhood where one of my best friends was buying and looked into it. New townhomes within 15 minutes of everywhere that I work, about as cheap as you could get at the time, and in a developing area, meaning hopeful good returns after a few years. What could go wrong? Even if the area didn't improve as much as expected, at least we'd have a stable investment! WRONG.
Once the economy crashed, development in our area halted altogether and hasn't picked back up (other areas of the city are moving again, our area is still stagnant). The condemned apartment complex next door, and the blighted shopping center with one open storefront down the street are still there (the apartment complex was old, but not condemned when we bought...now it's mostly boarded up and falling apart). The value of our house has fallen by around 40%. Some of the units down the street have seen a more than 50% drop in value. If I were to sell today, I'd have to pay out over $55,000 just to get out of my mortgage. If I had sold in 2007, I would have made $40,000.
Now is a good time to buy, with low prices and good mortgage rates. But MAKE SURE that owning is a good idea for you at this time. It was a good idea for us, but it came back to bite us in the ass.
To those saying that buying is always the better option, let's have a look.
- Our apartment was a two-bedroom with bonus room, 1300 square feet, and rented for $850 a month in a fairly decent area.
- Our town home is a two-bedroom with a bonus room (could be made into a third bedroom), with 1352 square feet, and my mortgage is currently about $1540 a month and includes all the property taxes.
- We bought in December of 2005, so around 7 years ago.
- If we had kept renting, we would have paid $71,400 over the past seven years. Since rent has surely gone up, let's assume $80,000.
- As my mortgage has gone down recently, we've paid approximately $134,000 in mortgage payments.
Looking at the above, AND knowing that we will need to pay another $55,000 just to be able to move out shows that renting would have been a FAR FAR FAR better option for us at the time. If it would cost us nothing or just a few thousand out of pocket to get out right now due to a stable home value, then I'd be fine with having paid the amount we did on our mortgage over the years. I didn't even buy a house with the intention of making a lot of money on the resell. Didn't really care about that, although it's obviously nice when it happens. But having to shell out a lump sum of $55k just to be able to get out is really hard to stomach.
Keep things like that in mind when deciding to rent vs. buy.
My advice is that until you are settled and know what's going on in your life, rent.
