Tag Archives: rent

Buy-a-Home vs. Rent-a-Home Choice has Great $ Impact

11-5-rentorbuyThe answer to the question about whether any individual or family would be better off if they rent or buy a home can differ depending upon when the question is posed as well as the particulars of the available properties in either category. Even when the financial calculations make it clear that to buy a home in Highlands would result in significant savings, it’s possible that credit problems or simple cash inaccessibility render the choice moot—for the moment, anyway.

The reason a family budget is universally recognized as the single best way to get a handle on finances is because if you don’t know how much you’re spending in any given area, you won’t know when it needs to be curtailed. Given the size of monthly rent or mortgage outflows, it’s a pretty good idea for anyone with a long term outlook to know what the rent vs. buy a home tradeoffs are. The answer to that can be spectacular enough that a change in plan is called for.

For some time, one of the national real estate web sites—Trulia—has posted a calculator that yields an approximate answer to the rent or buy question. It is aimed at metro areas only, and concedes it’s at best an approximation, but when you enter “US Average” for the location, it comes up with a percentage difference. Right now, for the U.S. median home price of $180,800 and median rent price of $1,545, “buying a home” comes up as 44% cheaper than renting!

Now, there are a whole bunch of assumptions that should have us taking that answer with a shaker or two of salt. This assumes, for instance, that were you to buy a Highlands home with the national parameters you would be the happy beneficiary of “today’s mortgage rate,” which Trulia presents as 3.6%. Yes, this rate is actually being offered in some places to borrowers with spotless credentials, but counting on it would be iffy for most folks. Yet if you substitute 3.9%, buying a home is still 43% cheaper; a 4.2% loan makes the answer 41% cheaper.

Likewise, because the tax advantage gained when you buy a home is so stark, your income tax bracket can tip the buy vs. rent comparison greatly. If you move down from the assumption of a 25% tax rate (seems unlikely for the $180,000 median home buyer), even with a 15% tax rate, buying is 41% cheaper.

Sooooo, it looks like it’s always a very good idea to buy a house instead of renting it, right?

Wrong! The most important factor is the one that makes the most sense: “how long you intend to live there.” Its starting point assumption begins at 7 years. Move that down to 3 years and—all else being equal—the calculator comes up with buying being only 19% cheaper. Assume 2 years, and the buy vs. rent answer is that the costs are about the same. And at 1 year, renting is 37% cheaper than buying!

The precision of these percentages are unlikely to be spot-on for any given local individual or family, but the answers are probably useful anyway. It does indicate that for anyone planning on staying put locally for at least 3 or 4 years, taking a closer look at the rent a home/buy a home financial impacts will be worthwhile. I can help with current realistic Highlands specifics, so why not give me a call?

Highlands Rental Home Appeal Might Have Three Explanations

7-30-rentalFor an increasing number of Highlands residents, what used to be a slam dunk assumption—that owning your home is preferable to opting for a Highlands rental home—is no longer so self-evident. The powerful reasons for owning are still there: ownership still means that you are building equity over time; it still means you are free from a landlord’s control; and it still means you have the psychological benefits of being the possessor of the place where you live, and the standing in the community that accrues to the permanence that implies.

Those are powerful inducements to forego a rental home in favor of ownership, for sure—yet according to the numbers, the number of Americans who own their homes has been declining since the advent of the housing crisis (at the moment, fewer than 2/3 of households now own their homes).

You might assume that the reasons for the increase in popularity for rental homes are simply financial, and to some extent, that’s the case. The economy, while improving, is doing so painfully slowly, wages are not rising as has been the norm in prior recoveries, and mortgage loans, while still at attractively low interest rates, can still be difficult for some Highlands borrowers to obtain.

Yet those dollars-and-cents arguments don’t paint the whole picture. Some of the reason why rental homes in Highlands are being chosen are due to changes in American lifestyles. Forbes contributor Beth Braverman offered some insights in last week’s article entitled “When Renting is More Expensive, But It’s Still the Right Move.”

Her first reason is not a new one: rental homes offer more flexibility. What is new is how Americans—particularly the group we call Millennials—increasingly value that freedom. Some of that has to do with the difficult labor market—and the premium breadwinners are placing on being able to ‘go where the work is.’

Next reason had to do with the relative illiquidity of the asset value a home represents. This looks like the first cousin to Reason #1: for someone who needs to move for professional reasons, being able to just pick up and move from a Highlands rental home can de-complicate the situation. For those who are reasonably sure they will be in town for long enough to offset the costs of acquiring and selling a home, the financial benefits may outweigh this one.

Last reason given was, “You’re not financially ready”—which is certainly the most longstanding one of all. Even if a current rental home occupant qualifies for one of the new programs (some can make the down payment as minute as 3%), it’s still possible that the ‘all in’ costs will strain resources. You have to agree with Braverman that in those circumstances, it’s probably best to build up savings, even if it means remaining in a rental home for an extra year or two.

All in all, any increase in the popularity of Highlands rental homes is good news for area investors who are (or soon will be) landlords. It’s also a great reason to give me a call this summer!

Sapphire Renters Face Trend toward Continuing Rent Hikes

6-30-rent“WHY YOUR RENT CHECK JUST KEEPS GOING UP” was the headline in CNN Money’s real estate special report last month, which could have explained to Sapphire renters why it is that U.S. rents keep rising faster than home values. After all, that doesn’t seem to make sense!

The list of reasons was long, and taken all together, fairly convincing:

  • Millennials are renting longer
  • Housing inventory is tight and getting tighter
  • The housing crash scared those who would otherwise have become homeowners
  • Baby Boomers are downsizing
  • Rental construction slowed when confidence sank after the housing crisis

It all comes down to demand and supply—less of the latter, more of the former. Although the author may have exaggerated a detail or two (“…there just aren’t enough ‘For Rent’ signs to keep up with the demand”), more than one Sapphire renter will probably agree with the gist of the piece: rents have been on the rise long enough that it makes you want to think about the alternative: buying.

Some of the more extreme cases are urban: in San Francisco and Denver, for instance, renters have seen yearly increases of 15% and 11.6%, respectively, according to Zillow. Sapphire renters can find themselves in something of a bind, though—since those higher rent bills make saving for a down payment more difficult. It’s just one reason. Per CNN, “There are a bunch of things keeping renters on the sidelines, meaning “the folks that would be normally making the switch to become homeowners are still taking up the rental units.”

The result: more units remain occupied, vacancies go down; rentable units remain scarce…so prices renters pay continue to go up.

Will this Catch-22 situation persist forever? Most likely not: the broad economic news is that this year’s steady job growth coupled with the pronounced turnaround in builder confidence is likely to loosen the supply stranglehold. Last Tuesday, there was also the kind of news that can prompt builders to really get going: government data showed purchases of new U.S. homes surged (particularly in the Northeast and West), with sales of new homes soaring 24% so far in 2015. That’s the best showing since 2007.

Of course, before supply outstrips demand, the situation puts landlords in an advantageous position. Sapphire investors who bought rentable properties during the downturn can now enjoy steady returns from their properties, or decide to sell in a robust market. If you are leaning in that direction, it’s the perfect time to give me a call!

Highlands Rental vs. Purchase Choice Involves Multiple Factors

1-21-rentbuyWhen your primary residence is one of our Highlands rentals, from time to time you may find yourself pausing, pen hovering over checkbook, thinking, “What if this check were going to buy this place, instead…?”

It’s a nearly unavoidable thought because common wisdom has it that buying a Highlands home usually makes more financial sense than renting it. That sounds sensible simply because at the end of the day (or, more accurately, at the end of a 15- or 30-year mortgage term), ownership means you no longer have to write those checks: you own that Highlands rental. It could be true—but there’s a lot more involved in the purchase-or-rental decision. If you make it a point from time to time to recalculate your situation, should it turn out that you aren’t any better off exiting the rental ranks, writing those checks to the landlord will become a less stressful activity.

The first consideration is location, location, location—but not in the usual sense. The question is how permanently you are likely to stay where you are. What are the odds that your job or family issues will take you away? If it’s likely that you will be moving out of Highlands within five years or less, a rental could well be a better choice. Buying and selling expenses—plus the time and effort involved—are factors that often make it wiser to delay buying until you are situated more permanently.

Then there is the real monthly outlay comparison between the two. Realistic calculations for owning take into account all of the monthly expenses involved. They include property taxes, homeowner or condo fees, insurance, gardening expenses, utility costs, and maintenance costs (they tend to be more than you first estimate). If your Highlands rental check is significantly smaller than the monthly home owning total, your financial ship might float higher if you put the difference into a savings account. You should consider whether your money might be put to better use elsewhere.

That last item points to the overriding issue: whether your current savings are able to support a purchase without incurring too much financial strain. That monthly home ownership calculation did not include the initial cost—the down payment. This part may have become less of a hurdle recently: the Federal Housing Administration has reduced its requirements. In fact, it may be possible to buy a house with an FHA mortgage with as little as a 3.5% down payment…although a higher down payment means a lower mortgage payment and no private mortgage insurance.

The last part of your calculation is one that can be a very positive financial benefit of ownership vs. rental: the mortgage interest tax deduction. Especially for those in higher income tax brackets with hefty mortgages, it can tilt the scales toward ownership.

I’m here to offer help and advice about any Highlands rental and ownership questions—in fact, about any of your real estate questions. I hope you won’t hesitate to give me a call!