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By Tara-Nicholle Nelson | Broker in San Francisco, CA

Buy vs. Rent: Making the right choice

Last year, I wrote about what I deemed "The Big Rethink," meaning Americans’ wholesale reconsideration of whether homeownership is still a desirable piece of The American Dream. While I concluded — and several studies have now documented — that most Americans do still have a desire to own a home, this month I came across several data points that made it clear that the rethink is nowhere near over.

A recent survey showed that 30 percent of people who declared themselves to be homebuyers are actually considering renting and buying at the same time. Sixty percent of adults surveyed agreed with the statement that renting currently makes better financial sense for their lives.

This last result was especially interesting, considering that about 67 percent of American adults do own their homes, according to Census data.

Since at least some folks who rent ostensibly want to own, that must mean a pretty big chunk of current homeowners think that with their current finances, it would be better to rent!

My first reaction was: "Really?!?" I know homeownership has been a rocky road lately, but it can also be deeply rewarding. From crooked contractors, to doubling my money, to being so upside down it rivaled an amusement park ride (minus the "amusement" factor), Lord knows I’ve personally experienced some pretty extreme ups and downs of being a homeowner firsthand.

But I have never seriously considered renting as a long-term housing solution.

In addition to it being ingrained in my mind (rightly or wrongly) as the grown-up thing to do, or at least to aspire to, something in my DNA simply has made ownership unquestionable. My parents owned many homes, and my grandparents owned their own homes. The idea of viewing renting as an intentionally chosen, long-term way to live — despite being able to afford to own — just hadn’t seriously occurred to me.

But the data is clear. Many Americans are looking at renting in precisely that way — or at least they are considering both renting and buying as equally reasonable alternatives.

When it comes to those current homeowners who responded that renting would be financially preferable right now, I wondered: Clearly they thought buying made financial sense at some point in the past. What exactly had provoked the change?

Are they responding to a temporary crisis in the state of their personal financial union, like a job loss or reduced income? Or to the not-so-temporary glitch in the real estate market, which has made refinancing, remodeling and even selling much more complicated and difficult than it used to be?

Are they just bearish on real estate right now, or for the long term? Are they simply sour on the current value of their home, especially knowing what it used to be worth?

The reality is, in many markets it’s certainly cheaper to rent than to buy. Even if a particular home’s monthly mortgage payment is roughly equal to the monthly rent on a similar home, there are many, many more costs of homeownership that must be considered by a smart homebuyer.

If you account for property taxes, insurance, homeowner’s association or co-op dues, the costs of closing the purchase and even the costs of buying appliances and paying for utilities that landlords normally cover — it takes a pretty big canvas to paint a true picture of the total costs of owning a home.

Analysts who have done the math comparing the standard deduction to the itemized deductions available only to homeowners have found that it takes a pretty high household income for the ownership deductions to outweigh the standard deduction. And some renters think it’s crazy to be "stuck" to a home or a town, or that it’s unduly burdensome to be responsible for repairs.

However, there are downsides to renting, too. Being subject to the whim of your landlord, who can (and often, will) raise your rent annually or even force you to move (unless you’re in a town with rent and eviction controls, which most Americans are not), at virtually any time, is one.

Being unable to paint your walls, customize your home or ever fully own your residence after years of paying for it (like one would after paying off a mortgage) are other disadvantages of renting. The latter is what causes entrenched owners to rant that renting is like "throwing your money away," or "paying your landlord’s mortgage."

And, historically, the upsides to owning were overwhelmingly strong — strong enough to make buying a very desirable option for financial as well as cultural reasons. Appreciation, the homeownership jackpot (or not), has been a key motivator for many to own, for generations.

And the tax advantages of owning a home — from deducting points paid at closing to deducting mortgage interest and property taxes on an ongoing basis — can be substantial.

But if, as the committed and newly vocal renters argue, appreciation is too speculative, risky and time-sensitive to be a valid motivation to buy, at least for the time being, and if you don’t make enough for the homeowners’ deductions to be a huge advantage, renting may actually pencil out to make sense for some people — not just because they are risk-averse.

It might actually be advantageous, financially, for some people who could buy, to rent.

Of course, homeownership is not strictly a financial experience. A home is not just an asset. It’s clear that the decision whether to own or to rent should factor in totally non-economic issues, like whether you crave stability or freedom, how you feel about commitment, and where you are in your life, family and career plans.

But it’s also becoming clearer by the minute that both renting and owning can represent well-reasoned, viable choices, from both financial and nonfinancial perspectives.

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