At some point, you will most likely have to decide between buying your own home and continuing to rent. If you’re considering owning a starter home, condos make an excellent choice, especially if you don’t need a large space and you appreciate the conveniences that living in a condo brings.
But is it wise to buy a condo, or should you just stay put in a rental? Here are some of the things to think about:
The Cost of Buying vs. Renting in Your Area
One of the most practical solutions to the question of buying vs. renting is getting the price-to-rent ratio in the area you want to move into. Here’s one way of doing this:
- Get the selling price of a condo you like
- Look for the monthly rental price of a similar condo in the same location, with comparable size, number of beds and baths, amenities, and others
- Get the annual rental fee (monthly rental x 12)
- Divide the price of the condo for sale by the annual rental fee
The price-to-rent ratio is classified into three ranges, as follows:
- 15 and below – Favorable to buy a home
- 16 to 20 – Home buying may be risky, and renting may be more favorable
- 21 and up – Favorable to rent
It has to be noted that the price-to-rent ratio only gives you a general snapshot of the market. In making a decision, you also need to look into other factors, including your financial circumstances and future plans.
Additional Costs of Homeownership
Don’t make the common mistake of thinking your homeownership costs start and end with your mortgage. There are other expenses to factor in, including:
- Closing costs, which, to buyers, is typically 2% to 4% of the selling price
- Down payment for the condo, or mortgage insurance premium if you obtain a low or zero down payment loan
- Property taxes
- Home insurance
- Maintenance, repair, and improvement costs
- Utilities
- HOA fees
Renting saves you not only the cost of a mortgage, but the above-mentioned expenses, as well.
Building Equity
Building your equity is the best reason to choose buying over renting. As you pay mortgage over the years, you are also building equity for your condo. This allows you to make a profit when you decide to sell the property in the future. When you rent, you’re building equity for the rental owner, not yourself.
However, there are certain conditions that can affect equity building. First, it takes several years before you can own enough of the property to make a profit when you sell it. Additionally, value appreciation is not guaranteed in the short term. While historically, real estate values do go up over time, they tend to fluctuate from year to year.
If you plan to sell your condo two or three years down the road, the property’s value may not have appreciated enough to cover commission fees and closing costs and leave you with a profit.
Given this, it’s generally considered that buying is the better option only if you plan to live in the home for at least five years before selling.
If you want to learn more about the pros and cons of buying or renting Eden condominiums, we at Destination Properties can give you expert advice. Call us at 801.745.2009 or email info(at)destinationproperties(dotted)com.
