You have to love Suze Orman. She dispenses practical financial advice, often that you often don’t want to hear, but know you should take. Much in the way that your mother told you “eat your broccoli” Suze says “eliminate your credit card debt.” Hard to swallow, but you know she’s right. Aside from the way she addresses callers to her show as “Lovebug” she’s got a lot of good things to say.
We have an affinity for the rental lifestyle in our business, so I was glad to read Ms. Orman’s advice on for renting vs. buying on oprah.com:
4 Signs You Should Rent Instead of Buy a Home
Just because you can buy a home or condo doesn’t mean you should. Here are some instances in which renting makes more sense.
1. You have credit card debt or you have yet to save 10 to 20 percent for a down payment. I know FHA-insured loans allow down payments of just 3.5 percent. But I have a higher bar for you to clear: If you have credit card debt and haven’t saved for a sizable down payment, you are not yet ready to own.
2. You envision moving within five to seven years. When you buy a home, you owe the real estate agent nothing. When you sell, however, you pay the full agent’s fee, which is typically 6 percent. Add in the other costs of closing a sale and the cost of moving, and it’s very possible that leaving your home too soon could eat up close to 10 percent of its sale price. Here’s something else to consider: Depending on where you live, it could still be a year or two before home prices stabilize. And even once they rebound, it’s wise to anticipate average annual increases in line with or slightly ahead of the rate of inflation, or about 3 percent. So if you have to sell a home in fewer than five years or so, the cost of selling may exceed any potential price appreciation during the time you owned.
3. Your calculations show that the cost of renting is a better deal than the cost of buying. The New York Times has a terrific free online calculator that shows how many years you’d need to own before your home “pays off” relative to renting.
4. You don’t really want the responsibilities and risks associated with being a homeowner. There’s absolutely no rule that says you must own. Whatever feels right to you is the right move—as long as you can afford it.