Farrell: Job uncertainty tips scale from owning to renting

The key factors to carefully think through for rent vs. buy decisions are finances, income and time.

Q I know it doesn't have widespread appeal, but have you any advice for people in the United States on H1B or L1B visas and what makes more sense: renting or buying?

I'm helping four foreigners move to the United States from the Philippines. Some people are still on the homeowner bandwagon: BUY BUY BUY. But their visas are limited.

I think they should rent until they know if the company will help them apply for permanent residency. Some say, if they leave, then rent their homes until it is a good time to sell. Yeah, I did that in the 1980s and lost my condo "investment."

PAMELA

A The particulars of your question are different, but the answer isn't unique to workers in the United States on a visa. I would give the same answer to them as I would to anyone considering the buy vs. rent decision. The key factors to carefully think through for rent vs. buy decisions are finances, income and time.

Before I get to the specific factors, I want to emphasize that both homeownership and renting are attractive choices when it comes to lifestyle. With a home, it's up to you and not your landlord whether you have pets. You can decorate your home any way you want and garden if you have a yard.

Renters don't have to worry about repair and maintenance. That's the landlord's responsibility. The old real estate saw that renters are "throwing their money away" is wrong because renters can easily set up a monthly savings plan to build up equity. Now, to the specifics:

Finances: I think we've all learned from the housing boom and bust that it doesn't pay to stretch your finances to own. The traditional guideline of don't buy unless you can put down a 20 percent down payment or more is still best. (That's a difficult hurdle for many temporary workers to meet even though they're earning a decent paycheck.)

Income: The financial insecurity so many of us feel isn't only a reflection of the Great Recession and anemic recovery. Our jobs and incomes have become riskier and more volatile over the past three decades. A big factor behind heightened income volatility is corporate America's greater reliance on downsizing, outsourcing and restructuring to boost productivity and competitiveness. More recently, jobs with state and local governments have become less stable.

Before people buy, they should ask themselves: "How secure is my job, my career and my household income?" The greater your financial insecurity the higher the odds you could end up moving elsewhere for work. The more insecure your income, the better renting looks, and vice versa. (Financial insecurity is built into jobs requiring a visa.)

Time: Forget buying if you can't stay in the home for at least five years. The upfront costs are simply too great. I don't agree that the risk is mitigated by the option of renting out the home. Renting comes with its own set of headaches and costs, especially for anyone trying to manage a property long distance.

With the information you've given me, it sure seems to me that rent-and-save trumps home-buying in their case.

Chris Farrell is economics editor for "Marketplace Money." His e-mail is cfarrell@mpr.org.

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