Alex Capozzolo
By: Alex Capazzolo
There’s no easy answer if you have a client trying to decide whether to buy or rent a home. They might feel like renting is throwing money away but think buying is too far out of reach.
You might even feel like you don’t have any advice to offer to them since the decision is so personal. As a real estate professional, however, you might have the tools to help your client decide what’s best for them. Making the choice will depend on several factors, so you’ll need to help them gather some information to put the pieces of the puzzle together:
- An understanding of their financial situation, including debts, income, credit score, etc.
- Where your client sees themselves long-term
- Where they’re at in life’s journey and what they’ll need in a home
- The current state of the housing market
There’s also information they’ll need that they might not have—like the available financing options, incentives and programs—that you can direct them to through your relationships with fellow industry professionals.
Start by asking your clients to look at the next few questions and determine the answers.
How does money look?
The state of one’s finances is the starting point for any major life decision, so if your client hasn’t taken a deep dive into the state of their money, invite them to do so. Most people don’t necessarily know what’s needed to buy and maintain a home, but you have that information—or know who has access to it—so you can direct them. A down payment is one thing, but there are also closing costs, moving fees and the cost of keeping a home up.
Then there’s the issue of credit scores. Direct your clients to lenders who can speak with them about credit and what’s required to secure a home loan.
Your role as the real estate professional in this scenario is to guide your client to all the resources they need to understand their financial wellness fully. Based on what they find, they might decide that renting is better until they can buy comfortably. The opposite might be true as well. After a full financial audit, they might realize that they are more prepared to buy a home than they realized.
Where do you see yourself in the next 10-15 years?
A client’s financial situation isn’t the only variable to consider. They’ll also want to think about their long-term plans. On average, homeowners remain in their homes for about 13 years. If they’re not sure where they’ll be in the future, renting may give them more flexibility. You can give them the pros and cons of homeownership in this instance. For one, selling a home can be quick and easy in a seller’s market, but if your client needs to move in a slow housing market, the process might be longer and more drawn out than they’d like.
There’s always another side to consider as well. If they decide to buy and do have to move, but the market isn’t favorable for selling, they could consider turning the home into an investment property. This, of course, comes with a whole new conversation on finances and property management. Make sure to direct them to experts in those areas.
How’s the housing market?
The current state of the housing market is also something to keep in mind when helping your client decide if it’s time to buy or rent. You’ll want to help them understand what it means to be in a competitive market versus a slow market. They’ll need to know where interest rates are and what the rates mean for their monthly payments.
When we’re talking about the market, this information doesn’t only apply to buying, however. Take a look at the rental market as well. Is the rental market in their area of interest competitive? Is what’s available conducive to their needs?
Housing inventory is an increasingly important factor in the market, and it should be front and center in a decision to buy or rent. For example, a large inventory of homes on the market could translate into lower home prices or more negotiating power for buyers. If there’s a low inventory, prices could be high, and negotiating power lessened. Your client needs to have pertinent information to make an informed decision.
These are not set-in-stone guidelines, but presenting all available information to your client will help them make an informed decision.
Where are you located?
Where your client lives—or where they’re planning to live—is potentially one of the most important factors to consider in their decision to buy or rent a home. In some cities and states, where the housing market is less competitive, it’s cheaper to buy a starter home than rent. Suppose this is the situation your client finds themselves in, and they’ve already evaluated the above-mentioned questions. In that case, one of the biggest buying obstacles might be saving for the down payment. In that case, it’s possible they can come up with a budget or seek financial counseling to help them reach their goal. If you have resources or know people who are experts in these areas, you can refer them.
In other cities and states, however, the opposite is true. Austin, New York City, and San Diego are all housing markets where it’s significantly cheaper to rent than buy.
To buy or to rent?
There’s no easy answer when deciding whether to buy or rent a home. You know this, as does your client, but after walking through the suggested questions, they’ll have more information to decide on what comes next.
Invite your client to carefully weigh all of these factors before making what is typically one of life’s biggest decisions. Throughout this process, you’ve positioned yourself as a trusted resource so long as you’ve put your client’s needs first and guided them toward good, useful and trusted information. In doing so, you’re building a valuable relationship.
Alex Capazzolo is the co-founder of Brotherly Love Real Estate. He has been investing in real estate for +7 years and owns a small portfolio of 14 units. Alex works full-time as a real estate agent in Southern California and enjoys writing on home improvement, marketing strategies, and other real estate topics.