This is an interesting question that never gets old. Right now, it is more important as young professionals are embracing the American dream. Let me tell you a personal story:
While in his 20’s, my uncle bought a house in Monroe Michigan for $26,000. 50 years later, today, the house is worth $70,000.
While it may seem like a massive appreciation of over 250%, there are vital things to consider. First, 50 years is a lot of time. Second, by the time you pay for upkeeps and upgrades, this house investment has very little profit.
Was he better off renting this house for 500 bucks a month? Probably. More importantly, he missed out on other investment opportunities that he might have had.
While my uncle could afford the house in Monroe Michigan, it would be hard to buy a house in areas like NYC or San Francisco in your 20’s, where mortgage payment is almost 1.5X the rent. Good investment properties are at .8x the rent, so you have a positive cash flow.
When evaluating the critical choice of buy vs rent, there are certain things you must consider in your 20’s. First, check the rent-mortgage ratio. Zillow often put up rent amount vs mortgage payment. Although, you can calculate the ratio yourself. For instance, if the rent is $1000 and the mortgage is $1500 renting becomes a better option. However, if the rent is $1000 and the mortgage is $900, buying is the right thing to do.
Apart from the rent-mortgage ratio, you may want to consider your career and schooling plans. For instance, if you plan to go back to school, buying a house may not be the right option. There are a few exceptions though. If you are sure you are going to stay in the house during the schooling program and can afford the mortgage along with the expenses, buying may be a viable option.
In the end, like a lot of real estate decisions, it always boils down to Location, Location, Location.
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This question was initially answered in Quora by our co-founder and mortgage ninja Kevin. View in Quora