For some, renting is better than buying

updated 6:16 p.m. ET Sept. 27, 2006

NEW YORK - Someday, 26-year-old Lisa Carlson would like to own her own home. But right now, she’s happy sharing a rented apartment with a friend in suburban Minneapolis.

“I want to make sure I can comfortably afford it before making that leap,” says Carlson, who works in Minneapolis. “I don’t want to be house poor.”

There’s no question that owning a home is a desirable goal, and low interest rates in recent years have made it possible for millions of Americans to buy their first houses, invest in income property or trade up to a larger home. For many others, though, there are good reasons to continue to rent.

“You really need to assess your overall expenditures, not just your housing expenditures, and ask yourself if you really can afford to buy,” said Eric Tyson, co-author of “Home Buying for Dummies.”

“Home buying is not for everyone — and certainly not for everyone at every point in their lives.”

For young people like Carlson, it’s not a bad strategy to get one’s financial life in order before taking on the kind of debt required to buy even a modest condominium or starter house.

Carlson, who works at the Colle + McVoy public relations agency, said she is focusing on paying off her college debt, then will turn her attention to accumulating money for a down payment on a house. She said that she’s wary of moving too fast because she’s seen friends struggle when they were financially unprepared to buy.

“Some have had trouble keeping up with their mortgage payments,” she said. “Or a condo association will raise fees and they can’t afford their place anymore.”

PLUSES AND MINUSES There are good reasons to rent rather than buy. Eric Tyson, co-author of “Home Buying for Dummies,” lists the advantages to renting: — It’s often easier and cheaper to rent than to buy — Maintenance and repairs are the responsibility of the owner — There’s less difficulty in picking up and moving — Liquidity is increased, so it should facilitate saving But, Tyson points out, there also are advantages to buying: — Income tax savings because mortgage interest and property taxes are deductible — With a fixed-rate mortgage, the monthly cost is static as the family’s income grows and makes payments easier — Real estate is a good long-term investment because it appreciates — There’s an emotional value in owning Associated Press

Diane Saatchi, senior vice president with the Corcoran brokerage in East Hampton, N.Y., said that in some communities, home prices are so high and rents are so low that many find it advantageous to rent. This is especially true in cities like New York, where rent-control laws have kept a lid on rental prices.

“But, of course, renters are missing out on the appreciation of a home,” she said. “There are renters who say they could put money aside, invest it cleverly and get that kind of appreciation — but most people don’t do that.”

There are also times when it doesn’t make sense to own.

“We see older people who have large houses that they’re selling,” Saatchi said. “In some cases, given their age and lifestyle, it doesn’t pay to for them to buy a smaller house. Or they may be temporizing until they decide whether to move to Florida or closer to the kids or something else.”

Author Tyson adds that buying can also be a problem for young people who think they’ll have to move frequently for their jobs.

“Residential real estate has relatively huge transaction costs,” he said of the brokers’ fees, closing costs, registration fees and other expenses associated with the purchase of a home. “To buy and later resell, figure it (the costs) at about 15 percent of the home’s value. That’s huge, and it means you have to stay put, ideally for at least five years, to recoup that 15 percent.”

For people like Xavier Lanier, 27, the rapid run-up in home prices in recent years — including in his home community of San Francisco — have discouraged him and his wife, Amisha, from trying to buy.

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