Pros and cons of renting vs. buying a home

 

We have been talking to a young couple about whether they should rent now because of their particular situation, or whether they should just go ahead and buy. There are certainly many things to consider, and we think this article from Zillow will be helpful. Let us know what you think.

At some point in your life, you will ask yourself the question, “Is it better to rent or to buy?” and the answer is almost always: “It depends on the state of housing and your circumstances.”

After 2008, when the U.S. economy bottomed out and the housing bubble burst, the standard belief that it’s always better to own, rather than rent, was turned on its head. When home values plummeted and many people found they were upside-down in their mortgages (owed more than the home was worth), the American dream of owning was shattered and renting was suddenly the desired living style.

That’s why the “Rent vs. Buy” question requires people to examine all the elements of the decision, since where we live is an emotional decision as well as an economic one. Here’s one way to break down the issues:

Pros of Renting

• Lower cost upfront – As a renter, you will be required to pay first and last month’s rent and perhaps a security deposit for a pet. If you buy, you will be required to pay a hefty down payment, plus costs for the home inspection, closing costs and other potential items such as a survey and sewer scope. It’s a difference of a few thousand dollars if you rent compared with tens or even hundreds of thousands of dollars if you buy.    Freedom and flexibility – If you are new to the area, you can rent and use this time to check out neighborhoods to see where you might possibly want to buy. By renting you can test an area without committing to it.

• Invest money elsewhere – You can take money that would normally be spent on a down payment and house costs and invest in the stock market or other investment opportunities that could get a better return on value, depending on location.

• Uncertainty in your career -- If you think you might need to move in the near future, or are mulling job changes where you could be relocated elsewhere in the country, renting affords the freedom to come and go as needed.

• Uncertainty in income – If you expect a pay hike or pay cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.

• Time to establish credit – Got bad credit? By creating a history of on-time rental payments, it can help you build good credit that you would need to qualify for a mortgage.

• No maintenance – When the pipe leaks under the sink, you don't head to your nearest hardware store, you head for the telephone and call the landlord.

• Incidental expenses – Occasionally, the landlord might pick up costs for utilities such as water, sewer, garbage, and in some cases heat and hot water as well.

But there are downsides, too:

• You may have no control over the fluctuation of your rent
• You might be limited in decorating the home or apartment.
• You won’t build equity in your home.
• You are subject to the landlord’s decisions.

Pros of Buying

• Build equity – When you pay rent, you don't own anything. When you pay a mortgage, you increase your degree of ownership in your home with every payment. Also, you can borrow against your ownership (or equity) in the home to pay for major purchases and you can refinance your home at favorable rates to help fund major purchases.
  
• Tax deductions – You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
  
• Creative control – You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Like the color mango? Go ahead and paint. Wish you had another room? Go ahead and add one.
  
• Maintenance choices – If you own a home, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a rental, you are at the mercy of the landlord when repairs are made and how.
  
• Pride of ownership – It might not make sense for everyone, but having a home you own is still the ultimate American Dream.

While a home can be a good investment – and let's face it, you have to live somewhere – many financial experts caution against purchasing a home simply as an investment. Also, keep in mind that the dynamics of real estate markets across the U.S. vary greatly. This reality requires each consumer to be fairly sophisticated not only in terms of their own finances, but about all the data for the market in which they are looking.

 

Thanks, Zillow, for this insightful article.

Summer Magic Started in April for Home Sellers

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

When is the best time of year to list a house for sale?

It's a question asked as often as when is best to buy.

Historically, summer has been the fastest season for home sellers. That was also the case in 2013, as many sellers across the country experienced higher sale prices and shorter time on market.

Now that summer is coming to a close, we can look back on the season and make some observations – perhaps even pinpoint at which point of the summer is most optimal to hang the for-sale sign. Data released last week from realtor.com found that homes that were listed in April benefitted most with shorter days on market and higher sale prices.

The reason April was pinpointed as the sweet spot is because as summer progressed, more sellers put their homes on the market, spiking inventory a bit and slowing down the market slightly. It's a simple matter of supply and demand.

Renters: Make Sure Your Security Deposit Is Safe

For those of us considering moving out of our rentals, securing your security deposit can be a make-it-or-break it moment for our finances, as you will most likely be needing a security deposit for wherever you’re headed. Unfortunately, many renters never see their security deposit again. Recently, Rent.com surveyed 1,000 U.S. renters, and the results were startling:

More than a quarter (26 percent) of all renters have lost their security deposit at some point

37 percent of men and 44 percent of 18-24 year olds said they did not get their deposits back because they moved out early

More women (9 percent than men (3 percent) lost a deposit due to pet damage

End of Summer Housing Trifecta Tells a Good Story

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Three highly watched housing indicators were released at the close of summer last week, giving us a high-level view of how housing is performing. While sales of existing homes appear to be slowing, negative equity and the foreclosure market are improving substantially, thanks in part to increasing home values.

Let's take a look at all three data releases below.

Pending sales slow

In the National Association of Realtor's latest index of pending sales, we saw a 1.3% decline in July from June. However, the forward-looking indicator was 6.7% above the same month a year ago.

Friday the 13th - A Poem

Friday The 13^th

To many the number thirteen
is a number to avoid and beware of,
add Friday in front of the number,
and you have a very scary day

To me the number thirteen,
has always been always been a lucky one,
and Friday the thirteenth,
even luckier still

Then again, if you are superstitious
any number can be unlucky.
If you want to think it so,
it just depends on how positive you are.

Now if you think negative,
you will be that way to,
so in your thinking,
just be like me.

Positive is lucky, negative is unlucky,
so train you mind,
to think positive
all the time.

By: David Harris
13 July 2007

8.3 Million Homeowners Will Soon See the Light

 

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Here's a bit of fantastic news in the housing market: 8.3 million homeowners are about to resurface from the doldrums of negative equity.

Given the abysmal situation with lack of homes for sale in many markets nationwide, the takeaway from this news is that we could be looking at a lot more inventory becoming available by the beginning of 2015.

We hope.

According to RealtyTrac, 8.3 million homeowners, or about 18% of homeowners with mortgages, will gain enough equity to sell their homes in the next 15 months without resorting to short sales.

Top 5 Reasons You Need a Real Estate Agent

Here's our September newsletter. Enjoy!

 

September Newsletter

Home for Sale - 7471 Miller Avenue, Gilroy

The Past, The Future, and The Present

 

 

Alain Pinel, General Manager of Intero Prestigio international, Intero Real Estate Services, Inc.

 

Let’s talk economy and real estate, shall we?  The Past, we know. We’ve been there. The Future, long term, we kind of know or want to believe we do, but if we don’t that’s OK because we are not there yet. Now, what about the Present and the weeks ahead? Tough read or guess. The picture looks better than in years past for the economy in general and real estate in particular, but (there is always a “but” it seems like these days), we have a hard time figuring out where we really are. Too hazy out there; too many question marks and conflicting signals.

 

Part of the uncertainty has to do with the season. We are still dozing from the summer heat and the vacation fever. We can’t wait to reach September, with what it traditionally means in terms of rebounding business activity. However, this year, we are slowly sliding into the fall market the way bathers get into the water, one toe at a time and with apprehension. Don’t get me wrong, the real estate activity, hot over the first 5 months of the year, is still pretty good , but (here we are again!) we have the feeling that the speed of the recovery is stuck in 3rd gear while we expected to be in 4th. What’s between the foot and the accelerator pedal?

 

I can think of 3 main reasons. Here they are:

• The Fed’s song & dance on whether and when to start scaling back the stimulus is creating more confusion than good. Many buyers and sellers are frozen in place until they know what comes next. The easy money policies which have pumped billions into the economy have produced new records on Wall Street and propelled real estate out of the crisis and into new historical highs. That was yesterday. We know that the money faucet is going to be turned down in a few days or weeks. The mere mention of this inevitability has already caused the cost of mortgage money to go up 30% or so. It’s not going to get any better. Rates are still amazingly low however and seeing so many would-be sellers today dangerously waiting on the sideline rather than putting their home on the market to meet the pent-up demand, is at best mind boggling. Can you hear me screaming from where you stand?

• Investors, large or small, domestic or foreign, are largely gone. Their shopping spree has been huge, while it lasted. Taking advantage of cheap financing or the power of cash from 2009 to 2011, at a time when prices were at or close to bottom levels, small investors have been gobbling up millions of distressed properties throughout the US. During the same time, the big guys, institutional investors, put their name on some of the crown jewels in both commercial & residential properties with a big price tag. No more. With a better than double digit price appreciation last year and again so far this year, real estate in the most desirable regions is now out of reach or no longer attractive to speculators. Cannot count on foreign investors to make up the loss. In addition to the price hike, unfavorable exchange rates and weakening economies have severely reduced purchases. That’s especially the case for Indian’ buyers from the old country, a group which has had a huge impact on sales in California & New York over the last few years. With the rupee’s on-going fall against the dollar, these providential prospects have lost their buying power. Even the Canadians, who account for nearly a quarter of the international sales in the US, are now slowing their purchasing appetite, with a 9% decline y/y.

• Lack of clarity in terms of economic priorities. In a dream world, most everyone has a job and wages go up nicely and faster than the cost of living. We are not there. How do we get there or at least steer in the right direction? What comes first? The jobs? The wages? How? When? It takes money to buy real estate. It takes jobs to make money. It takes growth to create jobs. The results, so far, have been sweet & sour. Economic growth has been steady but far from inclusive. Jobs have multiplied but most of them are precarious and low-pay. The prospect of a “part-time economy” is hardly motivating & mobilizing at a time when we need people to commit to long term goals, like buying a home and raising a family.

It will take a little bit more time to switch to high gear and foster significant & sustainable growth for businesses and individuals. The 4th Quarter is going to be the test. It should be a good one in our industry after a long summer transition. It’s a new market, with plenty of good opportunities and plenty of good reasons to take advantage of them. Time for action. If you are looking to sell your home or buy one, waiting is not an option.