Diversification in Renting
The main advantage of renting is diversification. When you own a home a huge chunk of your wealth is tied up in one asset.
If for some reason your town has an economic slump (I don't foresee that happening in Seattle nor Kirkland), or if local zoning laws change, or if there's a pollution problem your home's value will go down, taking your net worth with it.
This is when renting becomes particularly advantageous because you can invest your extra money in a diversified portfolio of assets, including: stocks, bonds, trusts, etc. You will be safe from local shocks like that.
Home ownership also puts you in a sticky situation if you lose your job.
Since both house prices and local job markets are tied to the local economy, the same slump that cost you your job, and which makes it harder for you to find a new work in the area, also tends to cut the value of your house.
All in all, owning a house makes it more likely that everything will go wrong in your financial life at the same time.
The perk of renting is the ability to be mobile without any major inconveniences. If you do need to move because of a local economic slump, you are able to be flexible and move to a different town.
True Upsides of Home Ownership
Homeownership isn’t without true upsides, of course. It means you don’t have to pay rent each month (though you do have to pay property tax, maintenance costs and interest and principal on your mortgage loan).
Rent itself can be highly volatile and homeownership bears the cost of this risk. In addition, having a mortgage can be a sort of commitment device that forces you to save more of your income each month — since mortgage payments are investments in housing equity, they thus encourage saving.
Finally, many people prefer owning to renting, because it gives them more control over their own living space and fulfills part of the American dream.
Notice that except for avoiding rent volatility, most of the points in favor of homeownership are psychological, not financial.
The only really good reason to buy a house is if you want to own a house. If you like homeownership a lot more than the average person — or if you want to use a mortgage to try to force yourself to save more money — then ignore the financial calculus and buy a house. It's that simple!
Contact Your Local Kirkland Real Estate Agent
No financial planner can tell you what price to put on your dream. If you're looking to purchase a home in the Eastside of Kirkland, Washington, please contact me, Catherine Ferrera, at +1 206.579.1077 or fill out this online contact form.