Should you rent or buy in Murrieta?

Should you rent or buy in Murrieta?  

Due to the pounding home prices have taken and the increase in demand for rental units, it is now much cheaper to buy a home than rent a comprable one in many U.S cities, including here in Murrieta in many cases.

The buy-rent calculation that we discussed in our previous blog "Rent vs. Buy a home in the Temecula Valley" is just one part of the decision-making process. Here are some other questions you should ask yourself when deciding whether to rent or buy in Murrieta:

• How long do you plan to live in Murrieta? If you're not keeping the home for several years, transactional costs of buying and selling (e.g; commissions, closing costs) can wipe out any buying edge.
• Do you have cash for closing? It's not easy to find banks willing to lend more than 80% of the cost of a home. That means buyers have to come up with 20% down, plus closing costs. On a $200,000 home, that's $40,000. One of our preferred lender, Greg Cook, can help you understand the requirements.
• Can you cover all the homeownership costs? It's not only the mortgage: There are property taxes, insurance, heat, utilities and regular maintenance.
• Can you can claim the tax advantages of homeownership? Mortgage interest is deductible and can shave a lot off tax bills but this benefit accrues mostly to high income earners with substantial mortgage payments. Many borrowers claim the standard deduction on their taxes and so derive no savings from the deduction.

Just as we did in our previous blog, let's put the rent ratio formula to test on two similar Murrieta properties. The property for sale is one of our listings:

• The first home is for rent. It is a 5 bedroom, 4.5 bath single family home with 3,235 sqft on Albacete Avenue in Murrieta, CA. It is listed for rent at $1,895/mo.

• The second home is for sale. It is a 5 bedroom, 4.5 bath single family home with 3,235 sqft at 34087 San Sebastian Avenue in Murrieta, CA. It is listed for sale by Janet Kleen of The Kleen Realty Group at $240,000. You can buy this home with estimated monthly payments of just $1,411/mo!

The annual rent for the first home is $22,740. So the rent ratio of these two spacious Murrieta properties is $240,000/$22,740 = 10.55. Remember, from the previous blog, a rent ratio of anything less than 10-14 is clearly a buying sign.

But let's play devil's advocate for a moment. Let's suppose it was cheaper to rent in Murrieta, or in any other Temecula Valley city... You still might not come out ahead of the game. As disciplined as we all try to be with our hard earned income, it's easy to justify certain expenses over savings. A mortgage essentially forces us to save. Every time you make a mortgage payment, you lower the balance owed and increase the value of your property holdings. Unlike your readily available bank account, the investment in your home mortgage is much more difficult to access.

Homeowners have to go through a lengthy and costly process to access this investment by taking out a home equity loan or a cash-out refinance. These are actions one usually doesn't take unless there's a specific need. Depending on where the location, renters may save on monthly expenses. However, contrary to the forced savings of mortgage payments, renters ultimately end up with nothing to show for their monthly payments in the way of savings.

Ultimately, however, the decision whether to buy or rent in Murrieta (or in any part of the Temecula Valley) depends on your situation and your plans for the future. If you would like to sit down and discuss your options and your specific needs, our Buyer's Specialist, Janet Hoesing, would be happy to meet with you. Feel free to contact Janet H. by email or at 951-837-6242 to schedule an appointment.