Q:  I am a single woman with no children and I am trying to decide whether I should buy a home or continue renting.  I was a homeowner for many years while married, including owning rental properties which I managed, but I was cashed out of all of the properties when I got divorced, leaving me financially independent.  I am currently renting and I find the lack of responsibility highly refreshing, but I wonder if renting for any length of time would be foolish from a financial standpoint.  If I decide to buy, I must also consider the condo vs. house question.  My main concern in condominium ownership is the homeowner association's power over the individual -- ruling against pets for example.  Is there any way to guarantee one's rights in a condo setting?  Lastly, I am in a position to pay cash for a house, but have been advised against it. What should I do?

A:   Well, you certainly have a lot of options to consider. There is never a single "right answer" to questions like this, all I can do is give you some additional information to help you make your own decision. 

First, as for the buying versus renting question, I definitely favor home ownership.  In a flat or declining real estate market, it is more cost-effective to be a renter because at any given point in time the monthly mortgage payment needed to purchase a home is always considerably higher than the monthly rental payment to live in a similar house. But when home prices increase, that is when renters get left behind.  Ownership essentially allows you to "lock in" your housing expense.  Your rent will usually increase every year that you are a tenant, but if you purchase a home with a fixed rate mortgage, the only increases you have to worry about are property taxes and insurance, which make up a relatively small percentage of your total monthly payment.  Many people who purchased their homes a few years ago currently have mortgage payments that are less than the amount of rent they would have to pay to lease the very same house today.  In fact, due to appreciation, it's not unusual for homeowners to find themselves living in a home that they could not afford to buy at its current market value.  

If you believe that we have some good years ahead in the Puget Sound real estate market -- and I do -- then buying a home is a smart choice to make.  On the other hand, if you believe the housing market has peaked and will not appreciate significantly in the years to come, you are better off remaining a renter.  Remember, real estate is a LONG-TERM investment.  It only makes sense to buy a home if you plan to live it in for at least five or ten years.  Short-term, it is always cheaper to rent.  

As to whether you should buy a house or a condo, that depends on your lifestyle and long-term investment goals.  Condos offer home ownership without the maintenance hassles of a single-family house -- but as you pointed out, you may instead be hassled by an overbearing homeowners association.  Talk to several current residents of the condo complex you are considering buying into to get an honest assessment of the management.  Don't expect the condo sellers to give you the full story because they have a vested interest in making the place sound attractive.  You'll have to live by the condo association's rules, so be sure you know what you're getting into.  Those are the rules that "protect your rights in a condo setting," as well as limit what you can and cannot do with your property.

If you are more concerned about your investment return than lifestyle considerations, I'd lean toward buying a house.  Well-located, quality condos appreciate in value, but in general, it's much easier to sell a house for the simple reason that there are many more potential house buyers than condo buyers in the housing market. 

As for whether you should pay cash for a home or take out a mortgage, there are emotional as well as financial considerations involved.  Many people dream of owning their home "free-and-clear," but keep in mind that it is much easier to qualify for a mortgage while you are working than after you retire.  If you have plenty of money in liquid assets and do not anticipate a need to tap the equity in your home, go ahead and pay cash.  On the other hand, if you want to hang onto some of the cash from your divorce settlement "for a rainy day," you might want to consider taking out a mortgage for at least a portion of the purchase price of your next home.  There are tax benefits to having a mortgage, but don't let that be an overriding consideration.  Base your decision primarily on your projected future cash needs.     

As I said at the beginning, there is no "right" answer.  Write down a list of your housing goals (e.g., low maintenance, appreciation, living space, resale potential, etc.).  As you look down the list, you'll get a clearer picture of the type of housing that best meets your needs.  Then focus your attention on finding the best deal you can get in that type of housing.

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