Time to Keep Renting or Purchase That Condo?
If you are currently renting an apartment, you might be wondering if it is time to stop renting and instead purchase your first condominium. As with all life decisions, it is important to weigh the pros and cons of what living option is best for you. While there are benefits to owning your own condo there are also benefits to continue renting an apartment and some downfalls for each. When trying to decide the best course of action for your lifestyle, consider the following to help with your decision.
Whether renting is better than buying will depend on several factors including your preferences, how fast prices and rent rise, and how long you plan to stay in your dwelling. Other factors to consider include where you want to live, basic market trends, how much money you have saved up, and what your future plan are.
Renting an apartment is generally less expensive than a monthly mortgage payment and utilities are often included in rent, as management will provide a reasonable cap, which allows you to save further. Apartment complex’s also typically come with an array of additional amenities such as a clubhouse, pool and grilling area, exercise room, and some other possible great additional services. Other benefits of renting an apartment is that appliances such as refrigerators, stoves, dishwashers, and often even washers and dryers are normally provided in the rent. Further, management takes care of your maintenance issues, so choosing to rent an apartment can be a relatively low-upkeep option.
However, even with all of the great amenities, apartments do tend to have some downfalls. There is very little privacy as it is easy to hear noise from the units beside, above, and below you. There is also limited living space in the common apartment unit and though you can find larger units, these tend to be much higher in price. Further, you will be continuing to pay a large monthly payment going into a landlord’s pocket instead of creating equity in ownership and building experience.
Many people do not know that a condominium is a very specific thing, where the owner does not own any parcel of land but actually only owns the airspace inside the walls, while all of the exterior elements are held in common with the other residents. Condos are a very practical option for people who want to live in a specific part of town that fits their lifestyle. Because condos are generally more affordable than a single-family home, it is a good starter option for young professionals who are looking to build equity and experience in owning and maintaining their own property. Purchasing a condo is an ideal option for someone looking for more room than an apartment can provide but is not yet ready to transition into having an entire home of their own. Condos also offer a very low-maintenance option as association fees cover the exterior and many of the expensive components of the structure.
Even though association fees cover exterior maintenance issues, these monthly association fees are collected outside and in addition to your monthly mortgage payments; further, these fees can increase when extra money for maintenance is needed. While renting an apartment you have no say in what happens regarding the buildings rules and regulations but when you own your own condo all homeowners share in the decision making process. This can be a great positive even if sometimes you will have to abide by the homeowner rules and regulations that you may not agree with.
Owning a condo is a long-term investment and is great for those who are experienced renters but want to build home equity and have a place to call their own without owning an entire home. With owning there are things you need to consider such as purchase costs you may incur when you close such as your down payment and typical closing fees, yearly costs including your monthly mortgage payment, community fees, taxes, and homeowners insurance. While with renting the only costs you will typically consider are initial costs such as security deposit and yearly costs including your monthly rent and possibly the cost of renters insurance. Even with these costs, the most important thing you should take into account is your lost opportunity costs. Lost opportunity cost is the return you could have earned by investing your money instead of spending it on a down payment, monthly mortgage payment, or rent.
Another thing to look at when deciding to continue renting or choosing to buy is your future and financial picture. Does you current financial situation put you in a strong or attainable position for ownership? To make this decision, evaluate your finances and job security with a mortgage broker to see if you are truly prepared for ownership. Next, where will you be in at least the next five years? If you plan to move, ownership is probably not right for you at the moment. While this depends on the individuals situation, ownership comes with a lot of work and possible costs and if you don’t plan to stay in the condo for a few years, all that effort might be better left on the back burner until you are ready to settle down and stay a while.
To avoid buying a condo at the peak of a ‘housing bubble,’ use something called the “price-to-rent” ratio. This formula takes into account the price of renting versus the cost of buying in the area you want (with many factors included) and can give you a sense of whether the current or upcoming market dynamics favor buying or renting. If this is something you are looking to do, use one of Fairways calculators to help evaluate different information you may need.