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When Does It Make Sense to Rent?

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It has long been a truism in the financial world that it is better to own than it is to rent, enabling you to build equity and home value appreciation over time. But with about 20 million renting households in the U.S., is that always the case? For African Americans who have historically heavily invested our resources in home-ownership as a means of economic security, this is a question worth looking at more closely.

The answer lies in a complicated web of factors that will be different for each person -- including the health of the housing market where you intend to live, your age, income and how much you can spend, how long you intend to stay in the property, your long-range financial plans and more.

Condition of Housing Market

Many expensive markets such as San Francisco, California, have sky-high costs for both buyers and renters. But in moderately priced cities like Chicago, even though buying remains relatively expensive, an abundance of rental inventory keeps rental prices low, making renting an attractive proposition.

Of course for many young couples or singles just starting out, who are earning average to low salaries and not receiving financial help from their parents, renting means they can avoid the cash down-payment that comes with buying. In accelerating housing markets, like the one we're in now, those down-payments only get larger. The median existing single-family home price was $191,600 in the first quarter of 2014, up 8.6 percent from last year. Many cannot pull together the average 10 percent down payment in this case $19,000 up front.

Age and How Long You Intend to Stay in the Property

Renting can also make more sense than buying for younger people who expect to change jobs and relocate frequently as they move up the career ladder. The era of the lifetime job is over. Today, by the time he or she is 31 years old, the average worker is expected to hold 12 to 15 jobs. For homeowners, even a few moves would cost a small fortune in closing fees and taxes. For renters it would be far less costly. Can renting make sense even if it costs more on a monthly basis than buying? Yes, for the reasons discussed above.

Income and How Much You Can Spend

A good rule of thumb is to know exactly how much of your income goes to housing costs. According to the U.S. Department of Housing and Urban Development, a family is "rent burdened" if 30 percent or more of its monthly income goes to rent. A family is "severely debt-burdened" if 50 percent or more of its monthly income goes to rent. In a low mortgage interest rate environment such as the one we are in now, buying becomes more attractive simply because the cost falls. has a sliding scale that allows you to input numbers and make a comparison for yourself.

Homeownership remains a good foundational step in wealth building, but renting can also be the right short-term solution for individuals and young families and in some extremely expensive markets renting can be the best long term plan. When deciding to rent or buy you should assess prices and interest rates in your local housing market, know your personal finances and the length of time you expect to stay in the home.

Renting can be the right economic choice for millions of Americans. Calculate the cost and benefits for your particular situation and see if renting is right for you.

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