Some decisions involve a lot of money, but really aren’t about money. Buying a home or condo, for instance, is the largest financial commitment that most of us ever make. Money is a guiding consideration, but it is not the most important.
If you want to treat it as a dollar decision, you’ve got two really nice recent tools:
- In April, MarketWatch provided a national heat map. It shows where the economics work best to rent and where it is better to buy.
- In May, the New York Times provided an online calculator for readers to evaluate the rent/buy choice.
The only problem is that I’ve never met anyone who decided to buy, or sell, a house entirely because it cost more, or less, than renting. I bet you haven’t, either. We do the financial calculation because, well, the lender requires our purchase to appear rational.
In fact, six factors influence whether we should own a home or condo. Let’s list them and see what a simple scoring system tells us.
Age. If you are under age 30 or over age 65, renting is likely to be a better choice than owning. Under 30 job and career changes trump owning a home. Many retirees may wish to continue owning a home but discover that lower costs of renting make retirement more comfortable. (Assign this a plus 10 between age 31 and 64 or minus 10 under 30 or over 65.)
Marital Status. Married couples are more likely to benefit from home ownership than singles due to the greater space of most single-family homes. (Plus 10 for marrieds, minus 10 for singles.)
Children. They need more space than is available in most apartments. Better schools are more likely in single-family home neighborhoods. (Plus 10 for children at home, minus 10 for empty nesters.)
Job/Income Stability. A secure income makes a 30-year mortgage less of a risk. (Plus 10 if you have a steady job, minus 10 if you are likely to change jobs.)
Nestiness. Let’s face it; some people are more nest loving than others. They want to own a home no matter what. Others focus on something else, like travel. (Plus 10 if you are a homebody. Minus 10 if you’re ready to roll.)
Tax Benefits. The greatest myth of home ownership is its tax benefits. For most people, they don’t exist because the standard deduction on a joint return is a whopping $12,400. Your deductions for mortgage interest and real estate taxes (our biggest itemized deductions) have to exceed that amount before owning a home has any tax benefit. Unless you are single (so you have a lower standard deduction) or are financing a house worth a good deal more than the recent national median sale price of $167,100, tax benefits aren’t part of your consideration. (Plus 10 if you are single and/or live in a high-cost home area with a state income tax. Minus 10 if you are married and live in non-premium price area.)
Add the points and you’ll find that the maximum score is 60. The minimum score is minus 60. But most scores will be in-between. Here are some examples:
- A young, moderate income single with job insecurity scores minus 60 if not a nester
- A young, mobile and secure high income single scores minus 20
- A young couple with two children scores neutral 0
- A mid-career married worker with kids scores a plus 40
- A divorced, late-career worker with job insecurity scores minus 20 if she doesn’t have kids at home and isn’t a nester, but 0 if she has kids at home and is a nester.
- A retiree couple scores 0 if they are nest oriented, minus 20 if they are vagabonds
- A retired single with moderate income scores minus 20 if a nester, otherwise minus 40.
Needless to say, we could change our scoring system in some creative way that would assure us that ownership was always best, just as we could measure cities in a way that would reveal Detroit as the very best place in America to retire. But if you think about these factors seriously, home prices and rents are only a small part of this very complex decision.
My suggestion: If you have any doubts, don’t own. If you don’t have any doubts, do.