Read Our Blog Visit Green Living

HHHunt Rent vs Buy Blog

RSS -- Grab HHHunt RSS Feed

Why Renting is Often Better

27 Apr 2017

Posted by Darren Kincaid

HHHunt Apartments

Once you get your career going, you may begin to think about settling down; maybe you are looking for a place to live. One of the biggest questions is whether you should rent or buy your home.

For many, buying is one of life’s biggest aspirations. But for others, buying property doesn’t really have a place in their life. It can be difficult choice, and one that’s going to have a big impact on your bank-balance. There are pros and cons to both buying and renting.

Buying a home has been traditionally been the goal for many people. Once you’ve paid off your mortgage or mortgages, your home is your own. A home also represents a large chunk of your credit security.

Fundamentally, this is how many look at it: monthly mortgage payments may be a headache when times are tough, and it may be increasingly difficult to get one but at the end of the day you’re paying into something that you’ll eventually own outright.

The same cannot be said for renting, and this is the main criticism. However, there are many benefits to renting.

Firstly, you’ll need a much smaller initial down payment to secure an apartment. Provided you treat the property right, you’ll receive your deposit back in full at the end of your lease.

Secondly, you have flexibility and freedom. You can choose to move– in a completely different region –more quickly and easily than you would be able to if you owned a home.

Thirdly, the upkeep of any rented property is the responsibility of the landlord. Homeowners will have to pay for home repairs and ensure they have insurance coverage.

For more information on apartments, contact HHHunt.

#HowYouLive

Economic Voice

Buy vs. Rent: Common Myths Busted

03 Jun 2014

Posted by Joseph Coupal

When weighing major life decisions, everyone seems to have the answer. You should marry this person, drive that car, and have so many kids—all by a certain age. Never mind if it’s actually the best choice for you!

Home ownership is no different. Deciding whether to buy or rent always comes with a generous helping of opinion. So how do you separate fact from fiction?

Let’s start by breaking down three common myths.

Myth #1: Buying a home is the grown-up thing to do.

Many folks look at home ownership as a rite of passage into adulthood. According to the National Association of Realtors, the typical first-time home buyer is 31 years old. So if you’re 25 and feel like you’re behind the curve because you haven’t bought a home yet, stop worrying. There’s no reason to rush into a big purchase just because friends or family tell you it’s what you’re supposed to do. Real grown-ups know it’s not the money-smart choice in every situation.

During times of transition, renting for a year or two gives you time to get your feet on solid ground before making a life-changing decision. Here are a few examples:

  • You just graduated from college and aren’t ready to plant your roots in one place yet.
  • You moved to a new city and aren’t sure which neighborhood is right for you.
  • You’re in the military and don’t want to lose money on a home every time you’re stationed in a new place.

Dave also recommends waiting at least a year after getting married to buy a home. After all, it takes a year of being married to know how close to your mother-in-law to buy. Spend your first year getting to know each other and learning how to manage your money well as a team. You have until “death do you part” to take your next big plunge!

Myth #2: It’s stupid to pass up a good deal when the market is hot.

You found the perfect home, and the sellers are practically giving it away. It just might be the deal of the century. Even though Sallie Mae’s got her clutches on your pocketbook, you’d be dumb to walk away, right?

Wrong!

With real estate, you make money by buying the right thing at the right time—not by taking advantage of the market.Never buy a home based solely on the market. Buy when you’re financially ready. Here’s how you know you can afford it:

  • You’re out of debt.
  • You have 3–6 months of expenses in your emergency fund, plus enough cash for a 10–20% down payment on a 15-year fixed mortgage.
  • You’re paying cash up front, or your mortgage payment is no more than 25% of your monthly take-home pay.

Jumping into home ownership with debt and no emergency fund is like diving into a pool with no water. You’re sure to hit rock bottom. First the A/C breaks, then the roof leaks. Next thing you know, you’re turning to credit cards and loans to pay for it all—and the hole you’re in just keeps getting bigger.

There’s nothing wrong with renting while you work to get your finances in order. In fact, Dave encourages it! Take time to lay the right foundation before you take the leap, and your home will be a blessing instead of a curse.

daveramsey.com

Think Before You Buy a House

06 Jan 2014

Posted by Joseph Coupal

It is considered a known fact that home ownership is a part of the American dream. But don't for one second think that home ownership is all sunshine, rainbows, and ice cream sandwiches. There are serious trade-offs that you should know, understand, and accept before signing on the dotted line.

1. Mortgage debt -- a marriage you can't divorce

According to the Census Bureau, the average home price in 2010 was $272,900. A traditional mortgage will finance 80% of that, or just over $218,000. The Census Bureau also reported that median household income in the U.S. was just over $51,000.

Are you comfortable owing over four times your total gross income (before taxes)?

You may be thinking, "But if I don't buy a house, I'm throwing away my money to a landlord with rent!"

Would you rather be "throwing away" your money to a landlord, or to a bank? Because if you bought that $272,000 average American house with a $218,000 loan at 5% for 30 years, you'd pay over $52,000 in interest to your bank of choice over the first five years alone!

Before the house was paid in full, you will have paid that bank over $203,000 dollars -- in interest alone!

2. When you own the house, you pay for the maintenance and repairs

Landlords get a bad rap. A respectable, professional landlord can make life orders of magnitude easier. They are your on-call repairman, plumber, hardware store, and lawn maintenance company.

Air conditioner compressor breaks on the hottest summer day? Landlord will take care of it. Snow storm knocks a large branch into the yard? Landlord will take care of it. Bathroom drain cloggs? Landloard will take care of it.

Nothing like a surprise $5,000 expense (with interest) to ruin those summer barbecue plans.

3. How long did it take to save up that down payment?

In our "average American" example, our potential homebuyer would have to put down a payment of $54,000 to qualify for the traditional mortgage. After closing costs and miscellaneous expenses, let’s call this a round $60,000 just to purchase the home and get a loan approval.

That means that in truth, this buyer needs a decent bit more than $60,000, though. The bank will not make a loan for a borrower who is putting 100% of their liquid assets into the home. Banks like back-up plans, and without some cash cushion, there is no real back-up plan.

So now, our typical American, must save somewhere in the neighborhood of 150% of their annual income to comfortably afford the down payment.

It may make more sense to take that $60k to $75k savings and invest in a target date fund, or an index fund. Those investments are liquid, they can be rebalanced, they don't require property taxes, and their toilets won't overflow, forcing you to pay a plumber to come out on a holiday.

4. Buying a home is not an investment

This final point will be hard to swallow. Buying a home is not buying an investment. It's buying a highly leveraged forced-savings account.

According to data from Freddie Mac, the inflation adjusted return for an investment in a home bought in 1970 is just over 27% through the second quarter of this year. That's a 27% return over a 43-year holding period!

If buying a home isn't an investment, then what is it?

It's a forced savings account. Along with that healthy dose of interest that goes to the bank every month is also a sliver of principal pay-down. Over 10 to 20 years, those principal payments can add up to a good bit of equity. So for those individuals who have trouble putting money aside in savings every month, this is an attractive feature.

But the point is, don't buy a house thinking it is a panacea for financial woe. If you want to maximize your investments, look elsewhere. If you want real estate exposure, consider a REIT. Don't be fooled into thinking that buying a home is a one-way ticket to the good life.

If you are still sure you want to join the ranks of homeowners, go for it. Your decision is thoughtfully considered, you've done the research into the upsides and the downsides, and you're making your own decision.

Personal finance and managing money is as much or more art than it is science. There is never a single right answer that applies across the board. We must all consider the risks, the rewards, and our own personal situations, and then act thoughtfully.

Daily Finance

Gen Y is Not Buying Homes

30 Dec 2013

Posted by Joseph Coupal

As the one generation looks to retire while the other is soon to be at its peak earning potential, the opinions and approaches to the property market differ markedly between Gen Y and Baby Boomers.

The two generations prefer different types of property and have different reasons for entering the property market.

Baby Boomers, unlike their Gen X and Y proponents, tend to have married in their early 20s and subsequently became home owners early.

Born between 1946 and 1965, boomers are the richest generation, having cashed in on several property booms. They hold over half Australia’s housing and financial assets.

Gen Y, which encompasses those born between 1981 and 1995, are nowhere near as asset rich.

As travel is now more affordable and desirable, this demographic is often choosing to spend their money on seeing the world rather than being tied down to a mortgage.

While this generation is often referred to as ‘Generation Rent’, this isn’t necessarily to do with affordability… they like the flexibility of renting.

Gen Y’s favor apartments.

Many Gen Y’s who choose to buy into property are using it as an investment vehicle. Data shows that 52% of Gen Y buyers surveyed are planning to buy an investment property instead of a home to live in during the next 12 months.

In contrast, Baby Boomers are generally looking for a home. They may also be increasingly trending towards apartments, but want larger units with quality fittings and finishes.

With more disposable income due to their children having moved out of home, Baby Boomers are looking to rent apartments within close proximity of entertainment and dining precincts.

They want the three A’s – action, accessibility and amenity – rather than the three traditional P’s – product, price and position.

Your Investment Property

11 Reasons Why I will Never Own a House Again

08 Oct 2013

Posted by Joseph Coupal

When my phone vibrated, I didn’t even have to look. I knew what it meant: the house had finally sold.

I wasn’t sure how I was going to feel when it was finally over. I wondered if I would feel sad or anxious or regretful. What I actually felt was relief.

It was a great house. It was where my children took their first steps, where they learned to ride bikes and scooters. It was the location for dinner parties and cocktail parties and birthday parties and our annual Halloween potluck. But it was time to go. We happened upon a great new house that was nearly perfect. And even better: it was a rental.

I know what you’re thinking: didn’t you want to buy another house? It was a question we were asked over and over as we approached our closing. But I didn’t want to buy another house. After fifteen years, I was tired of being a homeowner. After a few months of renting, I was sold – on not buying again.

There’s a lot of hype about why you need to own a house. But buying a house isn’t the key to financial security for everyone – and those alleged tax advantages? Also not quite what they’re painted to be. I hope to never own a house again. Here’s a list of eleven reasons – many of them tax-related – why:

  1. As investments go, it’s not always a great deal. While it’s true that some homes do appreciate, so do many other assets. If you bought a house for, say, $200,000 thirty years ago, it would be worth $468,375.09 today. While that gain feels impressive, that appreciation is based solely on inflation – which means that, in theory, the same appreciation would have happened with any asset. While we did “make” money on the sale of our house, I suspect we would have had a similar increase had we invested that money in the market or in our business.
  2. The mortgage interest deduction doesn’t make up for the fact that you’re still paying a lot of interest. While I understand that it’s possible to buy a house without a mortgage, the large percentage of homeowners (more than 70%) take out a loan. With average mortgage rates at 4.3% (as of this morning), you’ll actually pay $356,307.44 for a $200,000 home: $156,307.44 in interest alone. Averaged over 30 years, that works out to a little over $5,000 per year (even though in practice you pay the most interest at the beginning). Assuming you’re in a 25% bracket – and you itemize – that works out to a tax savings of just over $1,300 per year. But the word “savings” is somewhat of a misnomer because you’re still out of pocket more than you get back in tax savings: in our example, you would “save” less than $40,000 while paying out more than $150,000 in interest.
  3. Homes often tempt people borrow more than they can afford. As Congress tosses around the idea of taking away the home mortgage interest deduction, homeowners are screaming that they won’t be able to afford their homes without it. In fact, when you’re looking to buy, most lenders and realtors will use the deduction as a selling point to boost prices. But is that a great strategy? When buying a new dress or a new car, consumers tend to focus on the cost of the item alone when determining how much to spend. But when it comes to mortgages, that number edges up because of the potential for tax savings (again, see #2). With that temptation, combined with a sluggish economy, it’s no wonder that more than 10 million homeowners are currently underwater on mortgages worth more than actual house values. We were fortunately not one of them but not for lack of the banks trying. When we bought our home, we were actually approved for a mortgage which was hundreds of thousands of dollars more than the home we ultimately bought. We opted for a less expensive home – and thankfully so.
  4. Owning a house subject to a mortgage drives up debt to income ratios. Assuming that you borrow to buy your home – again, a pretty reasonable assumption – that debt load can be a drag on your credit and ability to borrow for other things (like a new car). I’ve made no secret about the fact that I owe a significant amount in student loans. That already affects my perceived ability to pay when figuring my credit. A mortgage dramatically increases that ratio. Interestingly, our monthly rental payment is actually more than our monthly mortgage payment – but on paper, our rent is not a debt, it’s an expense. The two may be treated very differently, depending on the circumstances.
  5. A mortgage is typically 20 or 30 years while, at any given time, the current administration has only four (or possibly eight). I can’t stress this enough. The home mortgage interest deduction has been around for what seems like forever. Does that mean it that you can count on it to be around in 10, 20 or 30 years? Don’t be so sure. The deduction has become increasingly vulnerable: it has been a talking point in practically every administration from Bush to Obama, despite Reagan’s famous promise to the National Association of Realtors in a 1984 speech that he would “preserve the part of the American dream which the home mortgage interest deduction symbolizes.” Just this year, Eric J. Toder, the co-director of the Urban-Brookings Tax Policy Center, advised Congress that “[a]chieving a revenue-neutral tax reform that reduces marginal tax rates significantly would be difficult or impossible to achieve without cutting back the mortgage interest deduction or some other equally popular and widely used provisions.”
  6. A mortgage is typically 20 or 30 years. So yeah, I said that already. But I have another point: home ownership can limit your mobility. We were fortunate that we were able to write checks for our rent and our mortgage. While we could afford to make both payments, chances are that we would not have been able to obtain a mortgage for a second house while continuing to carry the first. Often, in order to move, you have to sell – or rent – your first home. I’ve been a landlord before and I’m not inclined to do it again. And selling our house in this economy was no small feat. That’s part of the reason that we stayed so long in one place: it was hard to move. In addition to our own missed opportunities, that may not be good for the country’s economy: economists Andrew Oswald and David Blanchflower found that rates of high homeownership lead to higher rates of unemployment in both the U.S. and Europe because, among other issues, owning a home may keep people from moving to areas with good jobs and creates “negative externalities.”
  7. Houses take a lot of your money. There’s a reason that many folks refer to their homes as money pits: you often put a lot of money that you’ll never see again into a home. Not all improvements are deductible. Deductible expenses are generally limited to casualty loss deductions. In most cases, significant repairs to your home merely increase your basis for purposes of calculating a gain at sale. As most taxpayers aren’t likely to experience the kind of gain that would subject them to capital gains, basis isn’t always an issue which means that those expenditures get lost. Thousands of dollars to replace the air conditioning unit? The new garbage disposal? Replacing the flooring in the kitchen? The new washer/dryer? Landscaping additions? You can’t write them off and while you may recover some dollars at sale, rarely do you recover the entire amount. If you add all of those expenditures up over a 30 year period, you might see an explanation for some of that “gain” at sale. Often homeowners get fixated on two numbers: the purchase price of the house and the selling price of the house – but don’t forget to account for all of the money you spent in between.
  8. If you do hit the home appreciation jackpot, there can be significant taxes. Not all houses bleed money. Not all appreciation can be attributed to inflation and/or a combination of home improvements – sometimes, it turns out to be a good investment. But there is a price: if the gain on the sale of your home exceeds the $250,000 exclusion (or $500,000 for married taxpayers), the proceeds over that exclusion are subject to capital gains. Additionally, under the new health care law, a Medicare tax of 3.8% will be imposed on investment/unearned income, which includes gain from the sale of your home, for high income taxpayers. High income taxpayers means those individual taxpayers reporting income over $200,000 and married taxpayers filing jointly reporting income over $250,000.
  9. I like for things to be predictable and real estate taxes can vary. While mortgage payments can remain fairly flat, assuming you have a fixed mortgage rate, you more or less know what you’re paying each year. You don’t always have the same result with real estate taxes. Your tax bill can change based on property assessments and reassessments (just ask Philadelphia) or a change in tax rates – especially in today’s climate as townships and counties search for revenue. Unlike most commercial leases, residential leases don’t tend to be “triple net” meaning that the expenses are not directly passed through but tend to be figured as part of the total rental payments. Real estate taxes are generally accounted for in the cost of the rental; when they are not, they may be limited by statute or otherwise capped.
  10. You can’t deduct a loss on the sale of your home. If I lose money on stocks, I can net those losses against other gains. If I lose money in my business, I can deduct those losses or use them to offset other gains (even in other years). But it doesn’t work that way when it comes to housing. You can never claim a capital loss on the sale of a personal residence – no matter how much it hurts. In this market, many taxpayers are finding this to be the case. That makes putting all of your investment eggs in the housing basket a risky proposition.
  11. It’s getting more difficult to claim the itemized deduction. Home mortgage interest is only deductible if you itemize on your Schedule A, meaning that only about 1/3 of taxpayers even have the option of taking the deduction. You itemize if your deductions exceed the standard deduction: for 2013, the applicable standard deduction rates are $12,200 for married taxpayers filing jointly; $8,950 for head of household; $6,100 for individual taxpayers and $6,100 for married taxpayers filing separate. Those numbers are getting harder to get to for many taxpayers, including me. Mathematically, the longer you own your house, the less you owe in interest and the smaller the deduction. Add that to the bump in the threshold for the medical expense deduction (which means that I’m not going to be able to claim those expenses in 2013), restrictions due to the Pease limitations and the bar for miscellaneous deductions, and taxpayers are increasingly finding that the deduction is actually quite elusive.

I’m not saying that owning a home is a bad thing. I liked being a homeowner. I just happen to like renting more. I liked that when our oven died, it was replaced – at no additional cost to me – that same day. And I liked that as I wandered through Home Depot, I happily gazed at cabinet pulls and meandered through the garden center rather than making a beeline for caulk, wood putty or other maintenance items. Maintenance is no longer my problem.

I’m also not advising folks to eschew real estate: it can be a good investment for some taxpayers. In addition to owner occupied properties, rentals can be a good financial move. While I have no desire to be a landlord again, it has been a good bet for many taxpayers. My father-in-law has rented properties for years. He realized, like many other taxpayers, that rental real estate is not only a good income stream but a forced retirement plan. But he, like other savvy real estate owners, also understands the rules and the economics, and makes decisions accordingly.

What I am saying is that we shouldn’t buy into the idea that owning a home is for everyone. And it’s not just me: at the end of August, the U.S. Census Bureau reported that the home ownership rate was 65.5%, the lowest rate in the past 50 years (downloads as a pdf); adding borrowers in risk of default, the number is closer to 62%. In contrast, ownership in 2010 was nearly 69%: for purposes of context, a one-percent change in the ownership represents well over a million homeowners. That dip doesn’t spell disaster for our country. It would be a mistake to assume that countries with high incidents of home ownership are synonymous with a strong economy: Russia, Italy, Greece and Spain – countries with struggling economies – have significantly higher home ownership rates than the U.S. Conversely, some countries with traditionally strong economies like Germany, Switzerland and Japan, have lower home ownership rates than in the U.S.

There are so many considerations when deciding whether to buy a home. It’s not the ‘ideal’ scenario for all families. Don’t be fooled by promises of tax savings and tax-free appreciation: that’s not always the case. A home is a huge investment so be sure to research what it might mean for you before taking the leap – and don’t be afraid to say no. I did. And tonight, as I sit on my rented porch, staring out at my rented view while my kids happily play inside a house that they’ve already made their home, I don’t regret my decision one bit.

Forbes

Rent or Buy? More Choosing to Rent

05 Aug 2013

Posted by Joseph Coupal

Homeownership has always been held up as the American Dream. But it took a major hit during the Recession, slamming home values. As a result, despite a rebound in much of the country, even some affluent homeowners are weighing whether it makes sense to become permanent renters - and are asking planners for guidance.

Many former owners have already joined the ranks of renters. According to a March report from the Federal Reserve, 16 million Americans became homeowners between 2000 and 2006, while 700,000 became renters. However, in the five following years, 1.2 million left the ranks of homeowners, while 4.2 million new renters emerged.

The report also found that an apartment building boom followed. Remarkably, the report added, this happened "even with housing affordability near historic highs."

The fact that people flooded the rental market during a period when one might have expected a rise in ownership, due to a combination of depressed home prices and historically low interest rates, indicates that other factors are at play.

CHANGING THE MATH

Homeownership still makes sense for many affluent clients. Yet given the economic and political climate, "the prospect for increased taxes, decreased deductions and slow growth in housing is driving many people to consider the rental alternative.

While buying has many advantages,  homeownership requires a substantial down payment, typically 10% to 20% of a home's purchase price, and will generate an annual property tax bill as well as hefty annual maintenance costs - anywhere from 1% to 4% of a home's total value, according to HSH.com, a real estate publisher.

That changes the math for some. Because the cost of buying and selling a home can be close to 10% of its value, ownership makes sense only if a client plans to live there five to 10 years. You need enough time to ride out a market cycle if necessary to cover these costs.

Of course, it's not always possible to coordinate market cycles with the need to move - so there's no guarantee that homeowners who stay put will recoup their costs or do better financially than if they had rented.

GENERATIONAL SPLIT

Renting is more common among younger adults - 43% of people younger than 30 rent, compared with 22% of those 45 to 64, and 16% of those older than 65. But while young adults in the past might have stretched to become homeowners as soon as they were able, they are now more cautious.

Some consider renting to be a long-term lifestyle choice that gives them more mobility and freedom from maintenance chores. Having reached adulthood during the Recession, they saw home prices plunge and carry no illusions that appreciation is guaranteed.

Younger affluent clients tended to concentrate on the relative difference in net after-tax payment between buying and renting.  Now, many are more pessimistic, and are "factoring in either zero or negative short-term growth."

For clients 45 and older, the primary concerns may be different. At midlife and beyond, people often make the decision to buy or rent based on lifestyle preferences or health issues rather than financial concerns, particularly if they already have substantial assets.

For older clients in particular, renting may also offer estate-planning benefits. "Trustees and estate executors are alleviated from having to sell a property, which can require improvements in preparation for sale, selecting an agent, negotiations and differences in opinion among estate beneficiaries.” "Renting also alleviates a potential liquidity drain if the house doesn't quickly sell."

Excerpts – Financial Planning

Think Before you Buy

29 Jul 2013

Posted by Joseph Coupal

Have you heard this before: Renting is like throwing your money away. Buy a house now because home prices are rising. A house is the best investment you can make. Owning a home is the American dream.

Sound familiar? Like marriage and parenthood, buying a house means you can shed the label “recent college grad” and call yourself grown-up.

But a home is not necessarily the best investment you can make. And even if you can afford it, it may not make you happy.

Peel back the packaging on those reportedly low interest rates. Those are reserved for people with stratospheric credit scores, 20% for a down payment and minimal student loans.

Also, have you met the zombie homeowners? They still walk this land. Between the peak of the market in June 2007 and May 2013, loads of homes were foreclosed on.

The foreclosure crisis disproportionately affected young people and other groups. Plenty of college-educated, employed people whose mortgages fell underwater and, credit rating be damned, they opted to abandon their homes.

Home prices are rising now, and Zillow estimates they will go up 7% in the next 12 months. But from peak to trough, most homes lost a large percentage of their value.

Recent studies show that high rates of homeownership can actually dog a region’s economic growth. A May study showed that when a state doubles its homeownership rate, a doubling of unemployment later follows. An increase in homeownership led to lower levels of labor mobility, longer commute times and fewer new businesses.

If you plan to stay in a home for less than 7 years, it’s better to rent than buy.

“Many say you shouldn’t use a house as an investment. Investing in the stock market or some other vehicle is a better choice,” said Svenja Gudell, senior economist at Zillow.

Seattle Times

Rent or Buy Your Next Home?

10 Apr 2013

Posted by Joseph Coupal

Many people consider owning your own home the American dream, but no dream is one-size-fits-all.
 
While owning a home can increase your net worth, there are potential downsides as well -- additional labor, hassle and cost, to name a few. In many cases, renting an apartment makes sense.

How can you know which is best? Here's what you need to consider:
 
The minuses of homeownership: Owning a home is a huge time commitment. When you rent, maintenance is someone else's problem and repairs are solved with a phone call. When you own a home, you take on the rolls of maintenance and gardener. When something breaks, you need to fix it.
 
Homeownership also limits flexibility. When you buy, you should plan to keep the house at least five years, because transaction costs -- agent commissions and other sales expenses -- are high. Sell too soon and you won't recoup those costs.
 
The pluses: One of the joys of homeownership is investing time to make it yours and make it worth more. What you can do to customize a home you own is limited only by your imagination, budget and local zoning restrictions.
 
The bottom line: If you want to stay mobile, if you don't enjoy home improvement projects, rent. If you're staying put and watch a lot of HGTV, buy.

Money
The minuses: If you rent, you'll pay the first month's rent, a security deposit, and maybe a pet deposit. Buying means a down payment, closing costs, and other major expenses, not to mention the additional expense of repairs and maintenance when you own a home.

In 2010 the average annual homeowners’ insurance premium was $909. Property taxes vary widely depending on where you live, but run from hundreds a year to thousands.

The bottom line: If you don't have the money and/or credit score necessary to buy a home, the question is moot. But if you can afford to own a home in a desirable area with an expanding population, you'll probably be rewarded financially.
 
One way to run the numbers is to use buy vs. rent calculators. But, while those are certainly helpful, the answer you get from a calculator will depend on the information you provide -- some of which you can't possibly know.
 
For example, among other variables, most calculators will ask how much the house you're buying will appreciate annually, as well as how much equivalent rent will increase over time. These are questions you cannot answer.
 
Buying a home? Don't get in over your head, keep these thoughts in mind:

  • To lower the risk of homeownership, buy only what you need, not the most expensive house you qualify for. The average house in 1950 was less than 1,000 square feet. Today it's more than twice that. Remember that whatever you buy, you're going to have to furnish, heat, cool, insure, clean and maintain it.
  • If you have bad credit and only qualify for a high-interest mortgage, it will cost you tens of thousands of extra dollars over the life of your loan.
  • The more you put down, the less you borrow and the less risk you take.
  • Finally, if you decide it's time to buy, hope for appreciation, but don't count on it. However, if the community you're living in has both expanding employment opportunities and population, prices are likely to rise over time.  


MSN Money

Renting is Better than Buying

03 Dec 2012

Posted by Joseph Coupal

Many still think they need to achieve homeownership. While both renting and buying have their own sets of financial advantages, renting does appear to have an edge when the economy is poor. There are tremendous financial benefits to renting an apartment as opposed to buying a house. Here is a look at 10 reasons why renters have the better financial deal over homeowners.

No Maintenance Costs or Repair Bills
A definite advantage that renters have is that they have no maintenance costs or repair bills to pay off. When you rent a property, your landlord is responsible for all maintenance and repair costs. Homeowners, on the other hand, are responsible for all of their own repair, maintenance and renovation costs.

Access to Amenities
Another financial benefit to renting is having access to amenities that would otherwise be a huge expense. Luxuries such as a pool or a fitness center come standard at many apartment communities with no additional charge to residents.
 
No Real Estate Taxes
An obvious benefit that renters is that they do not have to pay real estate taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. Property tax generally determined based on the estimated property value of your house.
 
No Big Down Payment
Renters have the better financial deal upon signing. There is no huge down payment to move into a rental property.

Shaky Market Creating More Renters
While many experts claim the housing market is making a full recovery, others aren't so sure. An article written by International Business Times claims that as of yet the word 'recovery' is unwarranted. As foreclosures continue, many are scared off of buying. By renting, you are avoiding potentially owing a mortgage that is more than the house's worth.

Decreasing Property Value
Property values go up and down, and while this may affect homeowners in a big way, it does not affect renters. In a rocky housing market, renters are not as adversely affected.
 
Flexibility to Downsize
Today many people struggle to make ends meet. By renting, you have the option to downgrade into a more affordable living space at the end of their lease. When you are a homeowner, it is much more difficult to break free of an expensive house.

Fixed Rent Amount
Rent amounts are fixed for the span of the lease agreement. While landlords can raise the rent with notice, you are able to budget more efficiently since you know the amount of rent you are required to pay. Meanwhile, mortgages and the amount of the property tax can fluctuate.

Lower Insurance Costs
Renter's insurance is much cheaper than a homeowners policy and it covers quite a lot. The average cost of renter's insurance is just $12 per month. The average homeowner's insurance policy cost ranges between $25 to $80 per month.

Lower Utility Costs
It is often much more affordable to heat and power an apartment as opposed to a larger home. Rental properties typically have a more compact floor plan, and renters can expect lower utility costs.
 
The Bottom Line
For many people renting is the better option. There are plenty of examples that show how renting can save consumers a considerable amount of money. The choice of whether to rent or buy your own home is a personal one. Before making a hasty move, review the details and make the financial decision that is right for you and your family.

SF Gate

Many are Not Ready for Homeownership

19 Oct 2012

Posted by Joseph Coupal

With housing prices still low many renters are feeling the pressure to finally buy their first homes. But making the transition from renting to owning is a big change, and not everyone is ready for it.

Here are some tips that will help you decide if you should rent or buy.

When Will You Break Even

Many believe that without rent, you can start building equity in your own property. But don’t expect that investment to start paying off right away. With a down payment, property taxes, insurance and your monthly mortgage payment, expect the five to ten years to put a bite on your finances.

So when does home ownership start to pay off? There are a number of factors at play here, but on average, you’re likely going to break even in 5 or 10 years. In markets with high housing prices, the break-even point can be pushed back to a decade or more.

Learning to Live With Less

Homes are an investment that could pay for itself in 5 to 10 years. However, between the property taxes and monthly mortgage payment, as well as home maintenance fees, the amount you spend on housing each month can rise dramatically, and it may cause a major lifestyle shift for new homeowners. Even with tax benefits that allow you to write off mortgage interest costs, the first several years are going to be lean -- a change that many new homeowners aren’t prepared for.

Before you make the leap, there are a few questions you should ask yourself. Are you planning on staying put for several years? Are you prepared to cut back on luxuries like vacations and eating out? Are you willing to take on the risk that housing values can decrease further?

Taking Care of the House

Making your monthly mortgage payment is only one part of the equation when it comes to owning your own place. Without a landlord to handle repairs, it’s now up to you to tackle the day-to-day maintenance issues that are sure to crop up. As a renter, you can solve most problems with a phone call, but as a homeowner, be prepared to give up a Saturday in order to clean the gutters, or to dip into your savings to hire a plumber.

Fox News


Get e-mail notifications of new blog posts!
Enter email address below:


Delivered by FeedBurner