The following is a clip from a conversation Jill Schelsinger of CBS Money Watch had with a New York City resident in the newly opened Highline Park on Manhattan’s west side. In the clip, Jill interviews Matt, a young renter who says his primary financial goal is to save to buy a house. He is currently trying to save around $100,000 for a down payment, and has no debt.
When Jill asks, “Does it make sense for you to own something now instead of rent?” he replies, “I don’t know.”
Though people often say that renting is just throwing money out the window, sometimes renting really makes sense. For example: If you are saving for a half a million dollar house that requires a $100,000 down payment, there will be additional costs. On top of the down payment you are going to have a mortgage and insurance, on top of which you will pay taxes as well as any maintenance costs.
Jill recommends going through the exercise of finding out what the comparable rent would be to get pretty much the same thing. If the numbers come out such that owning will be $6000 a month and renting will be $3000, it might not make sense to buy. Keep renting! Jill also points out that sometimes it doesn’t make sense to own if you live in a big city where owning is expensive.
If you use the extra money well, by putting it in savings or in a 401k, then the option to rent makes sense. In this case, Jill says to rent until it doesn’t make financial sense to rent anymore, or when you find something you love and the price differential is not that great.
There is no clear answer to the rent vs. buy question. It all depends on your financial status, where you live, and what your goals are. Jill Schlesinger makes a good point: Owning a home may not be your best bet in every case. To make the most informed decision possible about how to achieve your goals, do a cost comparison between renting and buying, factoring in your own personal financial circumstances. Careful consideration and an open mind will allow you to make the best possible decision.