The Hard Numbers- The Harsh Reality of Renting

By
Mortgage and Lending with The Jonathan Arnold Team of Inlanta Mortgage
https://activerain.com/droplet/ypR

The Hard Numbers- The Harsh Reality of Renting

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment and in many cases today this still remains true. (Remember always buy low and sell high) It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. (WOW) If you are currently renting a house, you may be paying much more than that each Buying vs Rentingmonth. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be on your way toward building equity. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop lower than the rate you’d currently be locked in at, and this would cause your monthly mortgage commitment to go down.

And not only would your own home give you added space, your own back yard and overall privacy—home ownership would also give you some tax advantages. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant can provide you with the information needed to  evaluate the tax advantages of various loan scenarios with your tax consultant.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These pre-qualification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available today that offer ever changing opportunities to buyers.  It is important to evaluate your individual situation with a Licensed Mortgage Professional to ensure you have all the facts and know what is best for your personal situation.

If there is any time to buy it is NOW! Why? Because home prices are low today. Low home values are surely not good for people selling homes but they are great news for people wanting to buy a home. Don't miss this opportunity to take advantage of the current market before home values and interest rates rise.

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  Katrina Cole  

Katrina Cole

Business Development

The Jonathan Arnold Team
   


Inlanta Mortgage, Inc
2029 Celadon Dr NE
Grand Rapids, MI 49525

 
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Rainer
218,925
John Manuwal
Keller Williams Northwest Montana - Kalispell, MT
Kalispell Montana Agent and Photographer

My first place when I moved out was a condo. It was cheaper then rent. It also over 7 years tripled. I even sold when the market was heading down. I like the control a owner can have. Renting is something I don't like to do.

Apr 05, 2012 01:51 AM #1
Rainer
81,012
Donald Tepper
Long and Foster - Fairfax, VA
DC area investor helping heirs of inherited homes

Very good post.

There are just a few things I'd partially take issue with . . . or at least like to elaborate on.

You correctly state: "For many years, purchasing real estate has been considered an extremely profitable investment and in many cases today this still remains true." However, there's an important difference between investing in real estate and buying a property to live in. It's true that home values often rise in value, too. Your first poster, John, had that experience. And I had a very similar experience--buying a condo, living there, renting it out, and then selling it. Still, I think it's unwise for a home buyer looking for a primary residence to look on the purchase as an investment. (Too many folks in 2005 and 2006 made that mistake.) Look on it as a place to live. The appreciation--if it occurs--is icing on the cake.

I also think the contrast between renting and owning has been overemphasized. You again are 100% correct when you write: "you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!" But some people misunderstand this and--in their words--consider rent to be "wasted" or "money down the drain." Untrue. The rent has bought the renter something very valuable: A place to live. Could the money have been better used to buy? Maybe. But often--and historically--there's been a gap between the monthly cost of renting versus the monthly cost of owning. Renting typically has been less expensive. That gap's narrowed with today's very low interest rates and more affordable home prices. But still, in many areas, you can rent a property for less than the monthly cost of ownership.

In many cases, buying (versus renting) is the "right" decision. And your posting nicely lays out the case for buying. It's just that people should be buying for reasons that make sense.

 

Apr 05, 2012 02:16 AM #2
Rainer
119,944
Katrina Cole
The Jonathan Arnold Team of Inlanta Mortgage - East Grand Rapids, MI
Inlanta Mortgage, Business Development Manager

Thank you John for your comment.  In some marketplaces Real Estate has remained a solid investment.  Congrats to you on being able to take advantage of that market!

Apr 05, 2012 02:25 AM #3
Rainer
119,944
Katrina Cole
The Jonathan Arnold Team of Inlanta Mortgage - East Grand Rapids, MI
Inlanta Mortgage, Business Development Manager

Donald, thank you for your post.  I do agree with you that there are some areas (NY, NJ and CA to name just a few) where renting my less expensive than buying.  I also agree that no one should just decide to purchase a home because it is cheaper.  It is very important that there is a clear understanding of the responsibility and long-term commitment that goes into home ownership.

I happen to live in an area where it is actually quite a bit cheaper to buy than it is to rent an apartment or a home.  It is important for the home buyer to review all their options, completely understand the transaction and the responsibility as well as their marketplace.  This is the area where knowledgeable Realtors and Licensed Loan Professionals help consumers.

Apr 05, 2012 02:30 AM #4
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Katrina Cole

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