As the costs of homeownership increase, many would-be home buyers are considering renting instead. We are often asked if this is a smart financial move.

The general rule of thumb is that if you plan to live in the same location for five or more years, it is a wise investment to buy rather than rent. The transaction costs when buying a home are typically 3% of the purchase price and 7% when selling. In the DC Metro area, you typically need 3 – 5 years of appreciation to recoup these costs.

Many people buy homes to build equity and wealth. From 2011 – 2018, the median price of a 4-bedroom home in DC increased from $670,000 to $935,000, a 40% increase. In 2022, the median price through October is $1,250,000, a 34% increase over 4 years. (data from BRIGHT MLS) Although real estate is not considered a liquid asset, this is not necessarily the case in DC. The median days on market in 2018 and 2022 have been 12 and 8 respectively. In addition, homeowners can deduct a portion of their mortgage payments from their taxes, and with a fixed-rate mortgage, this expense can be an unchanging line on your personal balance sheet.

Homeownership does come with some risks and associated costs. Buying a home requires a down payment and closing costs. Owning a home requires more than a monthly mortgage payment. There are additional expenses, such as maintenance, repairs, property taxes and insurance. Property taxes and insurance can increase yearly. Also, to maximize your investment when it is time to sell, homes may need to be updated to reflect current styles. Many of these expenses are unpredictable and can be surprisingly large!

Renting may be a better option if you are moving to a new area, or are in a stage of life where convenience, flexibility and freedom of commitment are paramount. If you are moving to a new area, renting allows you to learn about neighborhoods, culture, and cost of living before making an investment. Renting can require less of an initial financial outlay and offers flexibility. Tenants are usually not responsible for major home repairs. At least for the term of your lease, rent is a known, fixed cost. However, at the end of your lease, landlords can and usually do increase rent, or may choose to terminate the lease altogether. Another consideration is that the lease can be terminated unexpectedly, for example if apartments are being converted to condos, or if a building is sold. While renters have the flexibility of a (relatively) short-term commitment, they also face the possibility of having to find a new home every lease term or, worse, unexpectedly. Moving can be stressful and expensive!

The decision to buy or rent should include more than financial considerations. Owning a home remains the great American dream. It gives stability, allows one to become a part of a community, and generates a sense of pride. However, you may be in a stage of life where renting is the smarter choice.

If you are trying to decide whether to buy or rent, we can help you! Our real estate agents will educate you about price points in the DC Metro area and current market trends. Our lenders can help you determine the financial considerations of each option, and if buying is the right choice, how different mortgage products can meet your needs. Contact us today!