With the slowdown in most markets, a common question that potential buyers have is whether to make the plunge and buy or if they should continue to rent. In many cases buying is the right thing to do, but there are situations when continuing to rent is the right choice. This article from the NY Times is a good primer in helping decide which option is he best:
NY Times: Is It Better to Buy or Rent?
I am not suggesting it because I'm featured in it, rather it's an unbiased article by David Leonhardt that aims to help with making the decision. You'll see that although I am a proponent of buying, I nevertheless was featured as a renter - and my reason is explained.
In our business we want to get buyers, however I believe it's best to look out for a client's best interest. And in my opinion, the best is to help them decide for themselves which is best. And I often prescribe this article as a good read.
Enjoy.
- Tchaka Owen
http://tchakaowen.blogspot.com/
Accounting and Tax - Rockford, IL
Accountant
I can agree with renting in "some" situations. But the article was from the NY Times and spoke mainly about the coastal properties. (both, east and west) These areas have the highest values which can translate to a bigger risk. The part that I do not agree with is this:
Most of the U.S. does not have inflated home prices. And in many areas, the cost of renting is equal or under the P&I payment. So most of the U.S. can benefit from homeownership. If you look at it logically, you can use your home to leverage your money. I will use the area that I live as an example:
| Current Appreciation | ||||
| Purchase Price | Rate % | |||
| $ 250,000.00 | 13.00% | |||
| App. $ Amt | ||||
| Year 1 | $ 32,500.00 | $282,500.00 | ||
| Year 2 | $ 36,725.00 | $319,225.00 | ||
| Year 3 | $ 41,499.25 | $360,724.25 | ||
| Year 4 | $ 46,894.15 | $407,618.40 | ||
| Year 5 | $ 52,990.39 | $460,608.79 | ||
| Year 6 | $ 59,879.14 | $520,487.94 | ||
Now the above is if it averaged 13% appreciation annually. Lets see how it looks the appreciation rate were to only average half of that and was only 6.5% on average over 6 years:
| Current Appreciation | ||||
| Purchase Price | Rate % | |||
| $ 250,000.00 | 6.50% | |||
| App. $ Amt | ||||
| Year 1 | $ 16,250.00 | $266,250.00 | ||
| Year 2 | $ 17,306.25 | $283,556.25 | ||
| Year 3 | $ 18,431.16 | $301,987.41 | ||
| Year 4 | $ 19,629.18 | $321,616.59 | ||
| Year 5 | $ 20,905.08 | $342,521.67 | ||
| Year 6 | $ 22,263.91 | $364,785.57 | ||
Jan 19, 2007 05:53 PM
Galleria International Realty - Hollywood, FL
I see where you're coming from Jeff. And you don't even have to go through the bonds and 1031 route, since you will have lived there for over 2 years straight, you can just sell and take your $250k exemption. Having said that, the key thing is to remember this article helps you decide what's best for you now. If your situation is such that you're better off buying, then do so. The article isn't saying just rent. And you've outlined 2 scenarios that are 6 years long. My 2 comments are:
1. The decision on whether to buy or rent should be revisited yearly - because things change.
2. Most markets don't experience 13% over the long term. Many don't even get 6.50%! Add Scenario 3 with 2% and you'll see the numbers are different.
When the article was written, it was in my best interest to rent - for several reasons. As of this past summer, my GF and I bought a home. My recommendation is that renters read this article once a year and make that determination each time. From a long-term perspective, yes buying will almost always be better.
Thanks for your opinion.
Cheers,
- Tchaka Owen
http://tchakaowen.blogspot.com/
Jan 19, 2007 06:39 PM
Florida List For Less Realty, Inc. Broker/Owner. - Cooper City, FL
Rental market in South Florida is booming right now. Too many investors stuck behind the 8 ball, giving away deals.. It will be like this for another 6-8 months...
Jan 19, 2007 09:44 PM
Galleria International Realty - Hollywood, FL
Scott, I have several properties for rent and I've received a lot of calls. Something's gotta give soon....if people aren't going to buy, they'll have to rent, which means supply of renters should meet or exceed demand. I don't see it working with no one buying AND everyone renting yet expecting prices to continue to drop. We'll see. Thanks for your comment.
Feb 03, 2007 09:56 AM
Real Estate Resources
http://tchakaowen.blogspot.com/ is primary blog.
But I will repost RE related blogs here.
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