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Basically if you are going to live in your place for 3 years or less then just rent. You can avoid property taxes, homeowners insurance, etc. But if you plan on living in a place for more then 3 years then buy or rent a house with the option to buy. In the long run you always want to buy, especially in this market you can get some pretty good deals.
You can't AVOID taxes, insurance, etc by renting. The landlord is going to INCLUDE these in the rents to cover his costs + a profit to make his investment worthwhile.
You can't AVOID taxes, insurance, etc by renting. The landlord is going to INCLUDE these in the rents to cover his costs + a profit to make his investment worthwhile.
I used to believe that as well, but recent events in California suggest that a lot of landlords will suffer a monthly loss on a property they wish to hold just to lessen the financial impact of letting it go unoccupied. Their long term strategy was to buy and hold as a store of wealth.
It also bears mention that, often times, taxes and insurance folded into rent prices are for taxes and insurance calculated when the dwelling sold for 1/3 of what it would sell for today. Those savings are substantial and no new homeowner can get them, hence you can only get them by renting.
I used to believe that as well, but recent events in California suggest that a lot of landlords will suffer a monthly loss on a property they wish to hold just to lessen the financial impact of letting it go unoccupied. Their long term strategy was to buy and hold as a store of wealth.
It also bears mention that, often times, taxes and insurance folded into rent prices are for taxes and insurance calculated when the dwelling sold for 1/3 of what it would sell for today. Those savings are substantial and no new homeowner can get them, hence you can only get them by renting.
I've found those taking a "loss" as you mention are leasing properties out, but not making the mortgage payment. They keep the money and usually a year or more will pass before the bank will even takeover the property and kick the tenant to the curb.
Since the decline in the real estate market and the flood of foreclosures has actually benefited landlords. The supply of rentals are more in demand, thus holding or increasing rents collected across the board.
With home prices & interest rates way down more & more investors are now picking up these deals just for the purpose of a higher return immediately through increased rents. Just because the market is slow to return, does not equate it won't.
Real investors are taking advantage of this market more & more knowing it's only a matter of time this buying market will soon shift to a sellers market.
The ONLY way I would consider NOT buying is if I was moving again within a year, but I would still consider the buy, the deal, & the terms. Knowing this is structured in my favor, if I did have to move I could utilize a leasing agent to manage property & use profits to offset my costs where I'd be moving until I could sell and capture the gains the current market has robbed.
Opportunity costs and prospective changes in government policy
Quote:
Originally Posted by mattywo85
In the long run you always want to buy, especially in this market you can get some pretty good deals.
It is a fallacy that you always want to buy in the long run. There are a couple of critical things that are not normally considered when deciding between renting and buying.
a) Opportunity costs:
Several studies have shown that, over the last few decades, investing in real estate essentially keeps up with inflation over the years. Sure, you may get lucky and own over a boom decade... but that's a gamble, like any investment. Use that same money and invest in the stock market and your return would be 6-8%... much greater than inflation, even while you spend part of it on renting.
b) Currently, the government HEAVILY subsidizes home ownership. Being able to deduct the interest from a loan is a huge cost to the non-owning taxpayer and a large source of our deficit spending. Not to get into the politics of it, but it is unsustainable over the long run, and it doesn't even make housing more affordable. It just drives up the price people are willing to pay. So it's a giveaway largely to the real estate professionals and a drag on homeowners (spend more money) and renters (shoulder a higher tax burden) alike.
There are already rumblings about the homeowner tax break... it may not stick around forever, or it may be reduced. This will certainly increase the cost of home ownership over the next couple of decades. As a renter, I am all for its elimination.
As to the idea of what a good deal is and what isn't... (original quote) with housing prices fluctuating ass they are, who knows that the real value of a house is?
Peace of mind? Location? Facilities... permanency?
OR...
Added responsibilities and costs, lack of flexibility, inability to move to a better job...
I love it when others are so uneducated about Professional Real Estate Agents or the product we represent. I often wonder why they themselves aren't bypassing an education then passing the state exam to cash in on all the "giveaway's" we're cashing checks on...I heard it's easy money and takes no real experience. I guess it's easy to opine from behind the cloak of an avatar and internet alias.
I think I'm changing my alias to "Trump the Mogul Renter"
Bottom line consult a professional, one that sells more than a few properties a year. It'll be free to explore your options while getting real answers to your questions & to questions you probably don't even know your inquiring about yet....like a lease option to buy. Structure it where you're controlling the property with an option to walk away....include in the contract the right to sell your option during the lease terms...remember it's ALL negotiable. Don't be afraid to structure any contract in your favor.
Last edited by easyjett; 08-06-2012 at 05:53 PM..
Reason: spelling
I love it when others are so uneducated about Professional Real Estate Agents or the product we represent. I often wonder why they themselves aren't bypassing an education then passing the state exam
I have done that in the past. Years ago, just for my education, passed the state exam (in another state).
Quote:
Originally Posted by easyjett
Bottom line consult a professional, one that sells more than a few properties a year.
I have done that in the past. Since 1980, have purchased five residences in four states. Always having experienced professional(s) handle the the transactions. In a few instances have gone through more "professionals" than homes until we found an experienced professional who could handle it.
So when the "Renting vs Buying Question" comes up, I don't give too much advice. Just what I actually know, usually from actual experience. It is not a simple question to answer without knowing a lot about the person asking. And for the agents who may encounter me, I have always either refused or given to charity any "finders fees" I have been offered from my referrals...
With interest rates at an all time low & you plan on staying in the area 3 to 5 years it would be wise to buy. Get with a top producing Real Estate agent and discuss your needs. The consultation will be free and you can get a agent recommendation from the ABQ Board of Realtors
You cannot state that it would be "wise to buy" if you don't know what the market is going to do in the next 3-5 years. You don't know where the economy is going. You don't know what changes will occur with Fannie and Freddie. You don't know if the market has bottomed out. You don't know if that money would be better invested in a diversified portfolio.
But you seem ready to ask someone to put essentially every single dollar they have (and probably more, since most home purchases involve debt) into the equivalent of one stock. For 3 years... with a fairly mandatory sell order at the end of the 3-5 years, regardless of market value.
Not to mention the costs involved in the purchasing and then subsequent sale of the property, the costs of upkeep, the risk of hidden repairs being needed. The risk of being underwater in 3-5 years and not being able to move. (This guy works for the Armed Forces. What if he is transferred?)
I see only one person who has a sure fire guarantee of making money over that transaction, and it's not the homeowner.
You cannot state that it would be "wise to buy" if you don't know what the market is going to do in the next 3-5 years. You don't know where the economy is going. You don't know what changes will occur with Fannie and Freddie. You don't know if the market has bottomed out. You don't know if that money would be better invested in a diversified portfolio.
But you seem ready to ask someone to put essentially every single dollar they have (and probably more, since most home purchases involve debt) into the equivalent of one stock. For 3 years... with a fairly mandatory sell order at the end of the 3-5 years, regardless of market value.
Not to mention the costs involved in the purchasing and then subsequent sale of the property, the costs of upkeep, the risk of hidden repairs being needed. The risk of being underwater in 3-5 years and not being able to move. (This guy works for the Armed Forces. What if he is transferred?)
I see only one person who has a sure fire guarantee of making money over that transaction, and it's not the homeowner.
"It is difficult to get a man to understand something, when his salary depends on his not understanding it!"
-Upton Sinclair
Bottom line consult a professional, one that sells more than a few properties a year.
Right, because their income depends on people buying houses. Whereas someone who does it part time and not as a major source of income will probably tell you not to buy in your situation.
Having said that, I know more than one F/T high earning Real Estate professional who would advise the OP to rent considering their situation.
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Opportunity costs and prospective changes in government policy
