July 10, 2024
This paid article is sponsored by Pendar Properties.
Once a rite of passage, buying your first home may be worth reconsidering given the current market.
“There's this notion that you're not really an adult until you own your own home,” says Ann Fiorita, a financial advisor at Waddell & Reed, “but the truth is, especially today, homeownership is not a prerequisite for adulthood, nor is it probably the smartest financial move.”
Fiorita suggests considering your motivations as a future homeowner.
“Is it for a better quality of life? And can you afford it? If so, great, go for it,” she said. “But if you're doing it because you think you should or because someone told you renting is a waste of money, you should think about what is really the better option, both financially and emotionally.”
Do the math and you might be surprised.
For example, if you're looking to buy a $340,000 home in Sioux Falls with a 20 percent down payment and a 30-year fixed-rate mortgage with an interest rate of 7 percent, your estimated monthly payment, including property taxes and home insurance, will be $2,429.
Let's say you're willing to shell out $2,429 to rent a comparable apartment in the city of Sioux Falls. For example, Clark Lofts offers a spacious two-bedroom, two-bathroom mass timber loft in a great downtown setting for roughly the same amount as your mortgage. If you decide a studio or one-bedroom is enough for now, you'll not only save more, but you'll also enjoy indoor and outdoor community space, a state-of-the-art fitness center, and even grocery shopping on the building's first floor.
Now, let's say you put the money you would have spent on a down payment into an investment: Using an average annual rate of return of 8 percent, you'll actually make a profit if you live in the apartment for seven years or less.
“In many life scenarios, the math shows that renting is a better option at this point,” Fiorita says. “While a first home used to make the most sense, that's no longer the case. Renting gives you the opportunity to put your money to work through investments while ultimately finding your 'forever' home.”
Such approaches are becoming increasingly common and are worth considering, said Ann Haber, co-owner of Pender Properties, which rents out several lofts downtown.
“There are definitely reasons to rent right now. In addition to the financial aspects, you're getting an inner-city lifestyle and luxury living that you just can't get in most single-family homes, especially first-family homes or even higher up,” she said.
“Increasingly, we're seeing couples and retirees who have outgrown their children also really love living downtown. They can take long trips, host friends in the common areas, and enjoy all the great restaurants and entertainment downtown without having to worry about home maintenance or driving.”
Other living situations that may make sense for renters include someone who is new to town, has switched to a remote job, or is going through a life change such as a divorce.
“Renting allows you to figure out your next steps and get to know the community without making a big financial decision you'll regret,” Fiorita said.
Plus, you'll avoid the hassles that come with homeownership. Lawn care? No more planning it into your schedule. HVAC repairs or replacements? Water damage or roof damage? All handled by the property owner.
“We take these issues seriously,” Harbour says, “and the property management company responds very quickly and makes sure this routine maintenance is done so that our customers don't have to deal with it.”
Also, don't forget to take a break from homeownership and live in a rental property – your first home may sell for significantly more than you paid for it. Invest the proceeds, enjoy maintenance-free, fun city living, and then use the money you've saved and invested to search for your dream home.
“There are many reasons to consider moving downtown, and we've never had so many options to fit your living situation,” said Harbour. “Clark Lofts is available for occupancy now, and Dakota Flats will open in July. We think you'll find there are many benefits when you take a fresh look at renting.”
To find out more about living opportunities with Pendar Properties, click here
Securities and advisory services are provided through LPL Financial, a registered investment adviser. Member FINRA/SIPC. Opinions expressed in this material are for general information purposes only and are not intended to provide specific advice or recommendations to any particular individual. All performance referenced is past performance and is not a guarantee of future results. All indexes are unmanaged and not available for direct investment.