Monday, April 30, 2012
Happy Money Monday! I went to an open house that Austin was holding this past weekend, as I'm seriously contemplating buying a home. It's a daunting endeavor to most people, but after renting in NYC for 10 years, I think I may want to take the plunge. But is owning a home for everyone? Austin explores the pros and cons of Renting Vs. Buying. As a realtor, I get this question quite often from prospective new buyers, friends and colleagues. Which is better? Is there a right answer? Yes, there is. But the right answer for you may not be the right answer for someone else. Everyone’s situation is different, so there isn’t a general right or wrong answer.
I am an advocate of both. As a home buyer, you have the liberty of making changes to your home as you see fit. In a one family home, you don’t have to deal with upstairs or downstairs neighbors. Then there are the tax benefits. As a renter, you don’t have the hassles of worrying about large repairs needed. The maintenance of the home is the responsibility of the landlord. Renting is usually cheaper than owning in regard to your monthly expenses.
"Rich Dad, Poor Dad” by Robert Kiyosaki has an interesting way of viewing home ownership. Traditionally, the American Dream is to own your own home. It’s viewed as the largest investment of your life...your greatest asset. Kiyosaki views this as just the opposite. When you take out a mortgage, this will probably be the largest loan you ever take. Therefore, it’s more of a liability than an asset. Yet, a profit can be made in the right market, so it's not a total loss.
The key is if you are renting and then you purchase a home and your monthly expenses go up without an increase in income, this may be more of a detriment. To take the leap from renting to owning takes planning and a very close look at your finances. You may have a surplus each month that can sustain the increase. Many want to own a home just to say they own a home and will make sacrifices to achieve it. Own for the right reasons and not just to keep up with the Joneses. Proper planning will make the transition much easier. This may include renting a little longer to build up your savings. Buy when YOU are ready, not when others think you are. PLUS do your research!
What are your thoughts?
-Austin
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25 comments:
First Bitches!!!!
DAMMITTT!!! I just KNEW I was gonna be first today!
Good Job Austin!! I dont think there is any other way to put it.
Buying a home is not for everyone. Some can and should do it and some shouldnt go down that path.
You should review your fiances to make sure it is right for you!
Based on many studies that have been done, renters usually end up saving more money in the long run then home owners, but again it depends on the individual...
1. I am going to tase you GEEQUE!!!!!!!
2. My hubby is really hot when he talks real estate.. LOL
Tell your RE Husband to let me hold some money then!!! LOL
Sukka!
This is so tricky, because I think it depends on what city/state you live in too. NYC is SOOOO expensive when it come to owning a home that I think renting makes more sense...if you're single. But if you have a large family, finding a big enough apartment with room to run and play for everyone might not make renting that attractive. It's a tough one for sure.
I personally feel like I'm throwing money AWAY since I'm a renter, but it's what I can afford to do right now.
You are right Stef, it is tricky!!
Stef, try not to look at as throwing away money. I hear people say "why would you want to pay someone else's mortgage". These are the wrong reasons to go out and buy a home. Do what works for you. If renting allows you to build an emergency fund or contribute to your child's education then renting may be for you. When I bought my first home, I lived check to check and sometimes less but "I owned a home". While everyone came over for get togethers, I stressed over the next monthly payment.
You want to enjoy your home. I was happier renting and stress free than cutting grass on a home I almost couldn't afford.
Unless your rent is the the same or more than yorur mortgage would be, and your space is currently adequate, you are ok.
This was right on time!! I'm living check to check and my savings is low. However I want a home. After doing some meditation this weekend I decided that I want to save a lot more and keep renting for a while. However I can't stand having people live above me or next to me too much longer.
Austin what's your take on people renting houses from owners? There are ups and downs. I say this because I couple of instances I've seen people put out of the houses because the owner wasn't truthful with them and the house went into foreclosure without the tenants knowing.
However renting a single family house would give me space and I wouldn't be connected to anyone and wouldn't have to worry about maintenance.
Thoughts???? Does anyone out there in blog land rent a house and if so how's your experience been?
Thanks Austin, and that's a good question Serena. Renting a house might kill 2 birds with one stone.
I want to own a home, but I'd have to get a fixer-upper. I don't mind doing that type of work though, and I'd want to buy it for cheap so that in the long run, it'll be an investment and I can sell it.
If you're single though, especially living in NYC, then renting is probably WAY cheaper than owning.
@Stef
"I personally feel like I'm throwing money AWAY since I'm a renter" is a common stance that renters take which I disagree with. Yes, owning a home can become an asset if you sell at a profit but for most folks ... its a 30yr financial noose.
I used to own a fancy, show-off condo in Philly and any pride of ownership was trumped by the stress of the auto-pay from my bank acct every 28 days (I chose 13 payments a year to shorten the length of the mortgage). It didn't make me any happier than when I was renting.
The thing is ... you have to pay to live somewhere, rent or mortgage. So, until you're in a city, at a neighborhood you really love AND you're mentally, emotionally & financially ready to make that HUGE committment ... renting is better on the whole.
Renting a home or an apt in a home comes with the additional risk of possible foreclosure. As a renter, you should do your research on the landlord as well. Property information is available to the public. Check you local county clerk.
Renting a home can be more expensive also but if its in your budget, it is a viable choice. The upside is that you don't have to worry about your credit as much. The landlord is more concerned that you have income to pay rent, a bank is more critical of your credit to pay yoru mortgage.
Renting in the DC area is getting expensive period and what's crazy is that I've noticed owners renting their homes for cheaper than what I am paying in rent. What I have observed though is that the cost of utilities, water, etc go up. If I could rent a home less than what I'm paying in rent then the difference could go towards utilities, water, etc.
But I'm staying still until my money is right. I have a great relationship with my apartment complex (just not the freaking tenants upstairs)! Sheesh.
-V- thanks for what you said as well! Good advice about being ready on all levels when wanting to buy and thanks Austin about the advice on checking in with the county clerk.
Here is a lil tidbit of info to show you how much of an "asset" a home is.
I currently have 86 clients.
-TWO of them have equity in their homes RIGHT NOW.
-47 owe DOUBLE what the home is worth.
-53 have montly mortgage payments over $4000
But isn't a fixed mortgage better to have since the payments will always be the same? My rent goes up every year, but I don't always get a raise every year, so my rent goes up while my income stays the same. If you're making a commitment to rent every month, isn't it the same as making a commitment to a mortgage?
Hey Courtney, I will tell you what my grandmother is going through. Her mortgage is the same, however her gas, water and electric bill are getting higer every year because of the economy and whatever else is going on :( heating an older home too is costly.
I like what Austin said that the right answer is within you. I know after looking at her gas bill the other month I had to think about those expenses. But again she has an old house that needs repair (like new windows, insulation, the foundation needs to be sealed, etc).
These are things I will be looking into if I decide to rent a house so when winter and summer hit I'm not hit heavy in my pockets!
@Courtney. Unless you are an investor who is going to flip a property in a short amount of time (which ain't happening in this market) you should ALWAYS have a fixed mortgage.
HOWEVER if everyone would have listened to that advise 10 years ago I wouldn't have a job right now soo I guess we can't be too mad.
Your Principal & Interest will stay the same in a fixed rate mortgage but your taxes & insurance can always increase & sometimes drastically depending on property values. If your taxes & Insurance are escrowed then your monthly mortgage payment will increase. These are things a renter doesn't have to necessarily think about.
You go A-Buzzz, I see you do listen when I talk at home! LOL
People sometimes go out and buy a home after going through many rental nightmares..
You have situations where the landlord where your renting is not taking care of the property, but continues to raise the rent.
I’ve known renters who took it upon themselves to fix the place they are renting, but after a while they get fed up and just go out and buy and own their own house..
They get tired of spedning money on somone elses property.
@Powerz...Either that OR I've just been paying attention at work for the past 10 years. :-)
It sounds to me like everyone is saying renting is better, but personally, I'd like to have something to pass down to my children.
I guess the benefit of home ownership really goes to those who are savvy with their money and have money to save after a mortgage and have built up reserves in case of emergencies. To me, renting isn't something I want to do forever because I plan to have a family and I don't want to be living somewhere with my wife and kids where there will be people on top of me and below me. I need space, and privacy.
I think this blog just confused me even more :-)
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