Should we rent or buy a home?
December 3, 2011
So many variables figure into the decision of whether to buy or rent a place to live. We’re talking about something profoundly personal – your home, the safe place in which you live, raise your family, and a place that is your personal retreat. With the percent of Americans now renting rising to the highest level in decades, the question of whether to rent or buy has become more relevant than ever. The problem is that the emotion associated with such a personal decision clouds our ability to interpret the key factors.
A decision this important cannot be left to emotion, and considering the opportunities currently available in real estate, prospective home buyers should take a close look at the differences between buying and renting.
Like everything else, it seems, you can find information on this topic online. Some Internet information is helpful and some is misleading or written with the purpose of selling you a product. It’s tough to sort out the good from the bad, so once again it comes back to the importance of having a trusted mortgage advisor. But the “Yahoo! Real Estate” rent versus buy calculator (realestate.yahoo.com/calculators) is a fun tool that effectively addresses the key quantifiable aspects of the buy v. rent question and I’d recommend taking a look. Basically, the rent v. buy questions is a comparison between the cost of each. There are so many components to consider that it would be easy to leave one out – and some factors just cannot be quantified. You’ve probably heard of pride of ownership, an intangible benefit of owning a home. You cannot put a price on the sense of autonomy connected with home ownership – not having to answer to a landlord about a pet, about an antenna, or about changing out that hideous orange shag carpeting is more empowering than almost any other aspect of life.
Owning real estate likely offers tax advantages. The ability to deduct mortgage interest expense and property taxes often enables homeowners to itemize other deductions resulting in significant income tax savings. So it is critical to consult with a trusted tax advisor to determine the tax implications of ownership – you’ll probably be pleasantly surprised. If you are a first time buyer, one of the best choices you can make is buying a duplex. A duplex is a two-unit property and you rent out the second unit. Usually, the rental income covers at least half of your mortgage payment so that your net house payment is much lower than renting. And the rent from the second unit is considered as income, making it easier to qualify. Plus, renting out the second unit allows the owner to file a Schedule E on their tax returns, further reducing your tax exposure. Ideally, when you’re ready to move up to a bigger single family home, keeping the duplex as an investment property is an excellent way to financially plan for the long term. When you’re getting ready to retire, the duplex is probably paid off and becomes an excellent source of retirement income (and a valuable asset!)
During the two and a half decades that I’ve been a mortgage lender, I’ve never seen such a convergence of positive circumstances. A perfect storm of opportunity. Real estate values have been artificially suppressed by the overabundance of short sale and foreclosure properties now on the market. Once the inventory of distressed properties is liquidated, it’s reasonable to expect a 15 percent or even 20 percent spike in values. While it’s going to be awhile before we see 2006-level values again we have seen a stabilization of values in our local market which likely points to rising home prices. Similarly, rising interest rates are inevitable due to the cyclical nature of rates and because of the aggressive economic stimulus implemented over the past few years. Home prices have temporarily dropped to 2002 levels and interest rates are hovering at historically low levels – we will not see home prices and interest rates this low again in our lifetimes. Yet home sales are still sluggish due to uncertainty about the economic future. One Latin proverb says that “Fortune favors the bold” and it’s never been more true than today. Buying real estate in the current market makes more sense than ever before but it does require a certain courage of conviction. Buying a home right now is a decision that you’ll never regret.
Provided by Mark Treiber, RPM Mortgage, Roundhill Square, Zephyr Cove, Nev., 775-586-1130.