Investing in a Home vs. Investing in Stocks: When to Buy a Home

You have two main options when it comes to housing. You can buy a home, or you can rent a house, apartment, or lot. Both give you a chance to invest. When you buy your own home, you are investing directly in the home. As you pay off your mortgage, you build equity. If you rent, the rent money itself goes down the drain. But you can invest leftover funds into the stock market.

The stock market has produced higher historical long term returns than the housing market. But a home offers other benefits, and rent drains your investment potential. So, which should you choose?

When It Makes Sense to Keep Renting and Investing in Stocks

It’s true, rent does drain funds you could otherwise be investing in a home. But whether that is a “waste” depends on your total financial portrait.

Let’s say you’re renting an apartment for $3,500 a month, and you have no other associated costs. Your electricity and water are included. But maybe the most affordable house in your area for sale would have a $4,100 mortgage, plus property taxes, insurance, and upkeep costs.

It might be cheaper initially to keep renting for the first few years and put all the money you’re saving into investments. The rate of growth might mathematically make it the best option. If your lifestyle isn’t demanding a change yet, you can keep investing and saving.

When It Makes Sense to Invest in a Home

When you own your own home, you’re not throwing money down the rent drain anymore. But you will have:

• Transaction costs during the purchase process
• Costs you don’t have to deal with when you rent (i.e. maintenance costs, property taxes, HOA fees)

The benefits of homeownership can outweigh the costs, however. Here are some signs it makes sense to invest in a home right now instead of continuing to rent:

• You plan to live in the same place for a long time (this prevents you from having to deal with closing costs over and over again).

• You are in a scenario where you can invest in a home and still have some income left over to invest in stocks as well.

• If rents are rising in your area, and you’re worried about getting priced out, buying a home to lock in a fixed interest rate could be a wise move.

• In some scenarios, you might find a lower mortgage cost than the rent you would otherwise be paying. Assuming all the other costs are affordable for you, becoming a homeowner could be the best financial move.

The comfort of living in a home of your own and the flexibility to modify or upgrade it is worth considering, even though that is not a financial benefit. Plus, you can live in it. You can’t live in a stock. You can also rent out a home, but that’s not something you can do with stocks. You usually aren’t allowed to do it when you are renting, either. That is another way you can bring in more money, which ultimately will help you add to your savings and investments.

A lot of people rent for a while to build up their savings and investments. Then, a life change or opportunity usually triggers the home purchase:

• When a great deal on a desirable property comes along.
• When a job forces relocation.
• When a family decides to have children, and/or expand into multigenerational living, and needs more space.
• When rents are going up, a fixed mortgage rate represents stability.
• When interest rates drop, making it an attractive time to buy a home.
• When someone is tired of dealing with landlords, or desires more freedom and flexibility than an apartment can provide.

Buy a Home in WA or CO

When you are ready to take the next steps toward becoming a homeowner, Blue Square Mortgage can help you invest in a home in WA or CO with a competitive mortgage. To get started, please give us a call at (206) 352-6453 to schedule your home loan consultation.