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Is it Better to Rent or to Buy a House During a Recession?

Updated on June 6, 2012

Is it better to purchase or rent a house when the economy is bad? When homes are not selling many people are afraid of buying. The idea of being stuck with a $200,000 house that can only be sold for $100,000 is not appealing for anyone.

On the other side, when someone rents a house, all the money paid disappears completely – no wealth accumulation takes place. Therefore, is it better to rent or buy?

A recession actually means real estate is on sale. When no one is able to sell their property, it is often easier to find great deals. And as Donald Trump states, “It’s not about buying the best property, it’s about getting the best deal.”

The Best Questions to Ask Before Buying a Home

The following questions will help you gain a better understanding in regards to whether you should purchase or rent a house. By looking at your answers to each one of these questions, you will know if it is smart to buy a house during a recession. Sometimes the answer is yes, other times it is no.

How long will I be in the area?

Less than two years: Consider renting. Of course, if you find a good deal, and are interested in A) Fixing a place up and selling it, or B) Renting the house out after you move, buying can still be a great deal.

More than two years: Buying is a good thing to consider. Why pay a large monthly bill to your landlord when that money could be building up an asset for yourself?

Can I Make the Down Payment?

No: Then renting is what you will need to do. But start saving! Building up an asset is smarter than making money for someone else. Consider borrowing money from a relative if possible. One of the greatest gifts a parent could provide a daughter or son is a flexible loan to make a down payment on a house, as the monthly payment of a mortgage should be far less than the monthly rent.

Yes: Consider how much you can save by paying a mortgage as opposed to rent. A house that costs $800/month to rent may only cost $400/month in mortgage payments. Provided you can sell the house for the same amount that you purchased it for, buying can save one a lot of money. CAUTION: Be sure to take into consideration the amount that you will pay on interest AND the costs of any repairs that may need to be done to the property.

If I Rent Out the House for Five Years Will It Be Paid For?

No: An investment is considered good if it pays for itself in five years or less. In other words, if you rent out a house for $1000/month and you paid less than $60,000 ($1,000 X 12 months X 5 Years), it is a great investment. Therefore, if the house costs more than that, do not consider it a good investment. It may still be a great purchase, but do not consider it as a solid investment.

Yes: If the house could pay for itself in five years of being rented out (take into consideration taxes, insurance, repairs, and other costs), then it is certainly a great purchase! Even if you move, and start renting the place out, the rent will more than pay for the mortgage and provide you with a bit of spending cash.

My Experience Buying During the Recession

My brother and I found a house for $10,000 and purchased it. We are both in college and the cost of renting a place for the next couple years would be just as much, if not more, than the price of this house. Of course, there are many things wrong with it – we are learning all of the ins and outs of home repair (along with plenty of help from family members).

We will likely be able to either rent out this house for $600/month or potentially sell it for $35,000 after making some major repairs – providing us with a rent free time in college and the ability to make some residual income for years to come.

When possible and plausible, buying is a far better financial move than renting. Spending money to buy an asset rather than paying to buy an asset for someone else is always a smart move.

During a recession many people are afraid of purchasing homes. However, during a recession is the best time to make purchases because everything is on sale! The key is to make sure that the property has the ability to pay for itself. Now is NOT the time to purchase a $600,000 home that you hope to sell in two years for $800,000. However, now may be the perfect time to buy a $50,000 home that you could rent out for $800/month if you were to move away.

Do you have any tips or suggestions that would benefit people struggling with whether or not to buy a home? Do you have experience purchasing or renting that you believe would benefit others? Please share below.

Do You Currently Rent or Own Your Home?

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    • Simone Smith profile image

      Simone Haruko Smith 5 years ago from San Francisco

      I had not been told before that an investment is considered good if it pays for itself in five years or less. That's great to know!

      Heck, all your advice here is fabulous. Awesome Hub!

    • Robert Erich profile image

      Robert Erich 5 years ago from California

      @lindacee: That's a great way to look at it! I believe that any bad situation learned from can make is a success instead of a failure. I wish you the best in your next attempt.

    • lindacee profile image

      lindacee 5 years ago from Arizona

      Great advice and info for people on the fence. I'm currently renting after taking a tremendous hit when the bottom fell out. It may be some time before I am in a position to purchase again, but I still think it is a sound investment if approached conservatively. At least I learned something from my mistakes!

    • Robert Erich profile image

      Robert Erich 5 years ago from California

      Thanks for all of the comments! It is true, a good deal makes it worth the time and money, but it is important to keep in mind taxes, utilities, and repairs.

      @greatstuff: that's an incredible idea! Rent out room by room. Thanks for sharing.

    • SoManyPaths profile image

      SoManyPaths 5 years ago from West Coast USA

      $10k for a home? or $400/mo for rent. You got a good deal. I always figure if I can get the money I spent on a house back in 3 to 4 yrs, it is all 100% cash flow after that and leverage.

    • leahlefler profile image

      Leah Lefler 5 years ago from Western New York

      This is a great hub, Robert. We bought our house nearly 8 years ago, so before the huge drop into the recession. The maintenance costs are a great thing to keep in mind, as well as property taxes. We have a septic field that will have to be replaced in a few years, and had a house inspector who didn't really do his job as thoroughly as he should have: we have a house built with Southern brick, and we live in the north! This means that the entire exterior of our house is literally chipping away due to freeze/thaw cycles. We also live in NY State and our property tax increases every year, increasing our cost of living considerably.

    • CassyLu1981 profile image

      CassyLu1981 5 years ago from Spring Lake, NC

      We bought our first home in August 2011. We decided that since we will be living in the area for the next 6 years if we were going to be paying over $1,000 in rent it might as well go towards something we love. I'm glad we bought when we did. It was a huge change and in our area houses are going up for rent with people paying $1,600 a month! So if we do end up moving at least we know it will be covered :) GREAT hub! Voted up and shared!

    • greatstuff profile image

      Mazlan 5 years ago from Malaysia

      When I was in Dubai,there's this house owner who converted his big villa into rooms for rental that is almost fully furnished. He also had someone to clean the common area. The kitchen and living rooms are the common areas for the tenant. The total rental he collected was much more than if he will to have rented the house to an individual tenant. This might work for houses near the university campus for mature students, or near the city for newly graduated office workers. Voted up and Shared

    • xstatic profile image

      Jim Higgins 5 years ago from Eugene, Oregon

      Interesting and useful too! Good advice. When prices are low, it is time to buy, but buy withing your budget. Homeownership is still a big part of the American dream.

    • greeneryday profile image

      greeneryday 5 years ago from Some tropical country

      Great tips for anyone who is considering to buy or rent a house. Thanks for sharing!

    • krsharp05 profile image

      Kristi Sharp 5 years ago from Born in Missouri. Raised in Minnesota.

      Excellent advice Robert. It sure makes more sense to own if the situation is appropriate. I'm learning a lot from your great hubs. Keep it up! I'm getting my MBA through you :) -K

    • Om Paramapoonya profile image

      Om Paramapoonya 5 years ago

      You found a house for $10,000? That's great. Congrats! I'm sure it will prove to be a good investment in the long run. Thanks for your sound advice on this topic. Well-done!