How renting can lead to your first home purchase

January 1, 2021

  • Rent or Buy house

You might be at a point in life where you’re considering buying your first home. There’s a lot to consider when making this decision and the right choice won’t always seem like the clear choice.

Today we’re joined with Ari Payes by Spring Street Realty who has dealt with this topic numerous times during his experience in commercial and residential real estate. We’re going to go over some of the fundamental aspects of renting and buying a home and Ari is going to give us some insight on how to make the best decision.

What are the some things to consider when making a decision to keep renting or buy a home?

When making the decision to buy or rent a home it’s important to ask yourself what your long-term goals are.

Buying a home is an investment in your future and can be a way to generate additional passive income while renting can allow you to save to buy your next home.

Here are some things to consider when buying or renting:

  • What are your priorities? (Family, Career, Travel)
  • What is your timeline to live in the area?
  • What is your goal/life focus currently?
  • How much money do I have saved in my bank accounts?
  • How much can I afford to pay monthly?
  • Location (proximity to convenience)
  • Type of home(i.e. single-family or multifamily complex)
Man on laptop

Are there any benefits to renting?

If your timeline of living in a specific location is shorter than 2 years, then renting a home could be a better option for you. There is a lot of flexibility when renting a home.

Depending on how a lease is written, you’ll be able to get up and move out of a home after a month’s notice. If you don’t have the extra money saved in the bank, renting can be very beneficial because there is no cost to maintaining the property.

Renting will allow you to save money in the short term as you prepare yourself to buy a home in the future.

What are your thoughts on buying a home?

When purchasing a home, you take out a loan from a bank, also known as a mortgage. When obtaining a loan from a bank, the lender will require you to put down a minimum of 3.5 percent of the purchase price (FHA loan).

Side Note: Make sure to have some money set aside for the maintenance of the property if any issues pop up in the first few months when you are getting your savings back up to normalcy.

The mortgage is paid on a monthly basis and includes principal, interest, taxes, and insurance. Out of these 4 items, only 3 are money lost. When you’re paying your principal balance, you are paying down the cost basis (initial value) of your home. It is a forward investment rather than renting where that money is gone forever.

Couple packing and moving out

Can you share some risks involved in buying a home?

Of course, there are also some risks involved in purchasing a home. One of them is overpaying. Sometimes, in a hot seller’s market, you can face buyer bidding wars. When making a bid on a home, you should always take your agent’s advice into consideration and make a decision based on what other similar home types sold for in the immediate area. It is important to know the market of your area and a good agent will make a difference.

Location is one of the most important aspects of purchasing a home. If you overpay and don’t live in an area with major price appreciation, you might only be able to make your money back. If you’re utilizing the purchase of real estate as an investment to leverage your savings, then buying in a metropolitan city is the best move you can make.

Major metropolitan city homes are known for holding their initial values over a longer period of time versus the homes in a rural area. When you go to sell your home, you will most likely see higher prices than what you bought it for 2+ years ago. In a rural area, price appreciation can be neutral or sometimes negative. This is because the majority of people desire the convenience that a metropolitan city has.

Handshake after making a deal

Renting can help you prepare to buy your first home

Once you have created the savings safety blanket, you can move on from renting and invest in a home. I will never shy away from telling someone that they should put equity into a home.

Real estate is one of the safest asset classes to invest in. Having a roof over your head is a basic necessity, therefore, there will always be demand for the product when you decide to rent or resell your home.

Warm Regards,
Ari Payes, Spring Street Realty

Ari Payes, Spring Street Realty