Category rent vs own

Common myths about “Buying” vs “Renting”

 
As you all know by now, I’m a huge fan of Trulia.com. IMHO, it offers the best real estate tools, allows you to dive deep when researching real estate agents, and is more user-friendly than most other sites that advertise the same features.

Again, totally my own opinion and nothing more.

If you would like to try out one of Trulia’s new tools, here is their awesome “Rent vs Buy Calculator“; this tool is unbelievably helpful, and simple too. Talk about user-friendly, the RVB tool not only breaks down your current cost to rent vs your current cost to own, but it even accounts for your tax bracket; which helps paint a better picture of one vs the other.

I have written a few posts in the past about Buying vs Renting (feel free to check out Example 1 and Example 2). And no matter how many things you read online or hear on TV, it will always be a case-by-case decision for you as an individual. There is no correct answer, but if you break it down based on your own needs as a single person or family, you will find yourself with a better plan to make that decision.

Aside from a side-by-side cost comparison, and reviewing the most common myths in this article, the most important, general question I ask all of my clients upfront is, “How long are you planning to stay?” Not only is this a hard question to answer for anyone, but it’s something that can change with each passing day.

What if I change jobs?

What if my family grows?

What if I don’t get that raise?

What if we have to relocate?

What if there is a tragic personal event?

What if … What if … and so on, and so forth.

These are all very good questions, and normal concerns at that. The more answers you have, the better off you will be. But the truth is that most people don’t have those answers, which is why buying real estate is considered a risky endeavor. But so is investing in gold, picking stocks, buying antiques, and even putting money into your 401K.

They are all “Risk vs Reward” propositions, where typically the brave and well-prepared perform the best. You have probably heard the expression, “If it was easy, everyone would do it.” It’s true, which is why there is risk. If everyone did it, the risk would be low as well as the return.

If you want to be in the best position possible to decide whether you should buy or rent, run your numbers and learn what works best for you and your current short/long-term goals.

As always, I’m here to help if you have questions about it.

“Rent vs. Own” – Another Real Life Example

 

Just last week, I had the privilege of listing another beautifully rehabbed property in South Philadelphia: 1915 Fernon St (shown above). Please feel free to click here to view this property’s website, pictures, and video.

I had written a similar article back in February, where I analyzed a listed property for sale against settled/pending rentals in the area. The purpose of the analysis was to compare and contrast the “Pros & Cons” of renting versus owning; from both a financial and a preferential perspective.

Let’s look at a “Rent vs Own” comparison for 1915 Fernon St and the surrounding area:

Option #1 – Rent (Similar homes around 1915 Fernon St)

  • Average Rent: $750
  • Upfront Costs: $2,250 (First, Last, & Security)
  • Monthly Payment: $750 (Rent) and $25 (Renter’s Insurance) = $775
  • Is this considered an investment? No
  • Are there any tax benefits? No

Option #2 – Own (1915 Fernon St)

  • Sale Price: $100,000
  • Upfront Costs: $3,500 (Down Payment, FHA), $5,100 (Closing Costs, Estimate) = $8,600
  • Monthly Payment: $489 (Principal/Interest), $93 (Mortgage Insurance), $14 (Taxes), and $50 (Homeowner’s Insurance) = $646
  • Is this considered an investment? Yes
  • Are there any tax benefits? Yes

Just like last time, I also went over some non-financial factors that can also either persuade or dissuade someone from buying a home when they have always rented.

Here are some Pros/Cons of “Renting vs Owning”:

Option #1 – Rent

  • Pros: It has cheaper upfront costs, you are not responsible for repairs (unless you break it), and you can usually decide to leave after staying for about 1 year.
  • Cons: It’s not your own home, you can’t make changes/upgrades, you’re subject to a landlord/landlady, your money is not invested in anything, you do not get any tax benefits, your rent can increase, and you’re not really interested in what happens to this property in the long run.

Option #2 -Own

  • Pros: You are investing in a neighborhood/community, you own a tangible asset, you have the ability to hold/sell/rent, you can make changes/upgrades, you get tax benefits, you can fix your principal/interest payment, and you could potentially gain appreciation.
  • Cons: You’re not sure what price is fair, you cannot predict the future, and you may not want to stay for a few years.

Again, based on the numbers above, it’s cheaper to buy than it is to rent for this scenario. But as you can see, there is more that goes into it than just stating the obvious. It’s really a matter of wanting to make an investment and a commitment, or not. There are those out there that feel like renting is a complete waste of money, time, and resources. But there are also those who feel the same way about owning.

If you have any questions about renting versus owning, please feel free to give me a call or send me an email; I handle both kinds of situations. So for me, it really comes down to what’s best for you.