Proj595 Risk Paper W4

PROJ595

Risk of Buying vs. Renting a Home

August 5, 2012

For as long as I can remember the advice for whether to rent or buy a home has always been buy if you can. If you buy a house it is an investment for your future and one that you cannot go wrong with. I think many people have heard these familiar sayings, “You’re throwing away your money on rent when you could own something,” or “Don’t you want to have a home paid off by the time you retire.” This was the way I always thought about owning a home. I use to think that I needed to buy a home right away before I wasted any more money on rent. Of course my husband and I rushed into a home purchase almost four years ago (right around the time the housing bubble burst) without putting much thought into all the risks associated with owning a home. Now I have a much different view on owning a home and wish I would have considered all the expenses involved in owning a home especially one with a pool.

One on the most obvious risks associated with buying a home especially if you are not planning to own in for more than 10 years is the value of the house dropping. This use to hardly concern anyone before 2008 but know it is a major factor when thinking about buying a home. For example I have friends that live in a neighborhood where the homes sold for $145,000 four years ago and the values of those homes now are $125,000. Many of my friends are in the military and have to sell their homes every 3 to 5 years. That use to be enough time to make a profit but not now. Will the neighborhood that you chose to live in stand the test of time? I did not realize how many factors there were in the value of a home. For example if there are a lot of renters in a neighborhood this can drastically reduce the value of the homes in the neighborhood.

A misconception that I had before I bought a home is that buying was cheaper than renting in the long run. I definitely do not agree with this especially since even if...