Should You Buy Or Rent?

Q: I’ve just graduated from graduate school with a degree in computer science. I’ve taken a job in a small town and am wondering whether I should rent or buy my first home.

The thing is I’ve been renting for so long that I really want to own something. The problem is that I’m not sure I’ll stay in this town for all that long. It’s possible that in two to three years, I’ll be transferred elsewhere with this company, or I’ll leave to move to a different company. It’s likely I won’t be in this town for the rest of my life.

You should know that I’m debt-free. I don’t have any school loans, car loans or credit card debt. I’m just wondering if I should buy a house because interest rates are so low or if I should rent until I have a better sense of what’s going on with my professional career.

What do you think?

A: First, the fact that you’re debt-free is fantastic, especially considering you’re just out of graduate school. Congratulations, because that is a huge accomplishment.

I understand that you’ve been renting for years. And now that you have the security of a full-time job, buying a home seems to make some sense.

While buying a home is a great thing to be able to do, you have to be ready for it financially and emotionally. And, given the current state of the housing market, it would be very difficult to buy something if you don’t know where you’re going to want to live for the next 5 to 7 years.

At this stage of your life, you should think first about your career and what it takes to get ahead. If you think it’s likely that you’re going to move in the next 2 to 3 years, I can’t really recommend that you purchase a house. Even if housing prices don’t decline further (as many economists believe they will), the cost of selling a property can be up to 10 percent of the sales price.

To break even, your home would have to appreciate 5 to 10 percent over the next couple of years, and I think that’s unlikely. It could happen, but it’s more likely that you’ll have to move and may not recover all of the money you put into the home you buy.

The only way to buy a home would be to buy one that’s really inexpensive (but still in a good neighborhood) and then fix it up. Even so, this isn’t as easy as it sounds and will take a lot of time and effort. But if you have a hankering to own, and you know your window of opportunity is only 2 to 3 years, this would be your best route.

Finally, you should compare what you would rent with what you would buy and then decide which choice would be better for you from a financial perspective over the next couple of years. You may find that renting for the next year or two might be cheaper than buying a home. When you buy the home, you’ll not only have the monthly costs of home ownership, you’ll also have the upfront costs of buying the home.