Obviously, I’m not writing this post for investors or renovators. This is some of the free advice I give “regular folks” who ask my opinion. Part of A Better Life for Everyone (ABLE) is helping people make the right decisions when they ask.

I’ve long believed that everyone should buy a house…eventually. The question should be, “Is this the right time for me to buy a house?”

Of course the answer to that question is different for everyone, and it changes over time.

Here are a few things to consider:

• Are you financially able to take on the long-term risk?
  So many people have noted that buying a house is the largest investment most families make that I wouldn’t even begin to know how to cite a source. Not only is buying a house expensive, it’s a long-term commitment. Most people sign a 30-year mortgage. Granted, most mortgages only live for seven years, but still…you wouldn’t want to sign up for such a commitment if you weren’t certain you’d be able to make the payments.

  Then there’s the down payment and closing costs to consider.

• Are you going to stay in the house for a few years?
  Nobody can predict the future. Things happen. But you probably shouldn’t buy a house if you know you’re going to move in a year or two…with a couple of exceptions. Mortgage origination fees, closing costs, and commissions on the sale of the house can really add up. I figure 11% of the sales price will disappear in fees, plus any points you paid up front. If you’re going to move in less than a couple of years, points and fees can consume more than the appreciation on the house, putting you in worse shape after the move than if you had rented.

  Now about those exceptions:

  • If you’re in a “hot market” and you are reasonably sure it’s going to stay that way, it may be worth the risk. What is 11-14% in points and fees against the 25% annual appreciation some parts of the Austin market have been seeing for the last few years?
  • If you’re doing some kind of a homestead flip—that’s where you live in the house you’re flipping—the forced appreciation and tax advantages may more than offset the costs of buying and selling.
• Do you know the neighborhood?
  If you don’t know the neighborhood, renting for a year or two is a good way to find out if you really want to live there.

  When I was much younger, my career moved me to several different cities. Since I didn’t want to end up stuck in a neighborhood where I didn’t fit in, I almost always rented for a year before buying in an unfamiliar city. The one time I didn’t was a real mistake. But every time I did rent, I ended up buying in that neighborhood. Is that a corollary to Murphy’s Law?

• What is your tolerance for inconvenience?
  When you own your own home, you are responsible for everything that goes wrong. I know several people who are quite happy renting, because they just call the landlord when the air conditioning goes out or the sewer backs up. They don’t have to have money set aside for such contingencies. (Mind you, I didn’t say I thought they were particularly financially intelligent. But they do know what they are willing and unwilling to do.)

There may be other situations where renting makes more sense than buying, but you can only live with your parents for so long. If you have one or if you have anything constructive to say, please comment. Sharing knowledge is one of the easiest ways to help build A Better Life for Everyone.

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