The Truth Behind Renting vs. Buying a Home

Are you doing the math these days around renting versus buying a home? Trying to decide if you can afford to buy? If so, you’ve probably Googled one of the many “rent versus buy” calculators out there to help you get a handle on your budget.

True, they’re helpful, and they can also help clue you in to things like insurance expenses and property taxes, but they overlook a number of key factors in the decision.

  1. A mortgage is a surefire way to build wealth. Provided you don’t buy more home than you can truly afford, your mortgage is like a mandatory savings account. A portion of your payment each month is going straight into your equity in your home. With renting, it’s your landlord who is building equity, not you.
  1. The tax situation has profound implications, especially in expensive markets. Until the laws change (and there’s little probability they will any time soon), your mortgage interest and property taxes are deductible on your income taxes. In expensive markets, this can represent massive deduction. (Also remember: Early on in a traditional mortgage you pay the most in interest and your deduction is the highest.)
  1. Renting puts your wallet at the mercy of the market more often than buying. If you have a year-long lease on an apartment, your rent could go up significantly should the rental market heat up. Your rent isn’t likely to stay the same over a long period of time. In most cities, in fact, it will steadily go up. With a standard mortgage, however, your payments are fixed and predictable. It might seem like a lot at first, but if you buy within your means, it’ll seem like less and less of an expense as the years go on.
  1. A mortgage gives you more future financial flexibility. The longer you have a mortgage, the more equity you build. The more equity you build, the more options you have to borrow against that equity or use it in ways which may be advantageous for debt and tax purposes. With renting, no such long-term benefit exists.

The key here, of course, is accepting the fact that you must buy a home you can afford which is priced in accordance with the market. Even if you’re not ready today, having a conversation with a Realtor(tm) will help you prepare for tomorrow.

How does renting look now? Should we have a conversation?:

Teresa Butler

Worthington Realty

614-565-8161

Teresa@TeresaButler.com

Renters Face More Cost Increases

FOR RENTRents continue to push upwards, as landlords take advantage of the hot rental market.

Average effective rents climbed 3.6 percent during the second quarter compared to a year earlier, according to REIS Inc., a real estate research data firm. Rent growth has bloomed at a fast pace since 2012, hovering around a 4 percent annual growth since then.

Strong technology markets like San Jose, Calif.; San Francisco; and Denver are seeing some of the largest increases in rental costs. In San Jose, rents rose 7.2 percent from the second quarter of 2014 to $1,951 a month. In San Francisco, rents rose 6.8 percent to $2,316. In the country’s most expensive rental market, New York City, rents rose 1.7 percent over the prior quarter, reaching $3,294 a month.

Ryan Severino, senior economist at REIS, says that inadequate supplies are pushing up rental costs. “We’re waiting for the supply to come on the market but it just hasn’t hit yet,” Severino says.

REIS projects that 230,000 units will be completed this year — that’s nearly double above normal levels. In the second quarter, the apartment vacancy rate was just 4.2 percent.

As new supplies hit the market, “we’ll probably see rent growth begin to decelerate,” says Stephanie McCleskey, vice president of research for Axiometrics.

Source: “Rents Continue Their Steep Climb,” The Wall Street Journal

Why Renters May Be Losing Out

Americans are better off buying than renting in the majority of places across the U.S., but the number of renters continues to be at record highs.

Realtor.com® finds that it’s cheaper to buy rather than rent in 80 percent of the counties in the U.S. That’s because renters continue to face sharp price increases. A record number of renting households are leading to fewer apartment vacancies, which in turn is continuing to push rents upward, notes Jonathan Smoke, realtor.com®’s chief economist, in recent commentary at realtor.com®.

But many renters – with home ownership aspirations – are struggling to break into the housing market. Indeed, 81 percent of renters indicate they would prefer to own a home if they could afford to do so, according to the Federal Reserve’s Survey of Household Economics and Decisionmaking. Fifty percent of renters reported that they lack the funds for a down payment and 31 percent of renters say they could not qualify for a mortgage.

Other reasons given for renting included 27 percent of renters saying it was cheaper for their household; 25 percent who thought renting was more convenient; and only 12 percent said they rented because they preferred it over owning.

The amount of income renters may have influenced their responses for why they choose to rent. For example, for renters earning less than $40,000 year, their top responses on why they rent were because they were unable to save for a down payment (52%) or qualify for a mortgage (35%). On the other hand, for renters who earn more than $100,000 a year, their top responses for renting were because they believed renting was more convenient (39%) or they preferred renting to owning (17%). Twenty-nine percent in the $100,000 and up earner group said they plan on moving in the near term.

Source: “Federal Reserve Report on Household Economic Well-Being,” National Association of Home Builders Eye on Housing Blog and “Midyear Report: The Housing Market Is on Track for Its Best Year Since 2006 (and it Ain’t a Bubble,” realtor.com®

Why It Pays to Be a Home Owner

SOLD HOUSEHome owners are building net worth at a pace that is up to quadruple that of a renter.

In the past 15 years, the net worth of the typical home owner has ranged between 31 and 46 times that of the net worth of the typical renter, according to the Federal Reserve’s Survey of Consumer Finances, which is based on 2013 data.

On average, home owners had nearly $200,000 in net worth compared to the average $5,000 net worth of renters, according to the survey.

“Home owner equity is a substantial component of home owner wealth,” Danielle Hale, research economist at the National Association of REALTORS®, writes on the association’s Economists’ Outlook blog.

Source: “Net Worth of Home Owners vs. Renters,” National Association of REALTORS® Economists’ Outlook Blog

Study: Rental Payment History Can Help Boosts Credit Scores

The addition of rental payment data to credit files may help more potential renters become home owners.

Experian became the first credit reporting agency to add on-time rental payments to its database. It recently conducted an analysis to determine how the added rental information has aided consumers’ credit files.

From Renters to Home Owners:

The study found that subprime and nonprime residents saw the greatest positive score impact by the addition of rental histories. Nineteen percent of the study participants that were considered subprime moved to at least one higher – or less risky – risk segment by the addition, opening them up to more affordable credit and additional credit opportunities, the study noted.

For the previous unscoreable, adding the rental data has now allowed them to have a credit score, with the majority now falling in the least risky prime category too, Experian’s analysis shows.

“Consumer financing rapidly changed during the economic upheaval, and regulatory changes forced lenders to tighten the standards for the underwriting process,” says Genevieve Juillard, president of Experian Consumer Information Services. “This excluded many Americans from the opportunity to attain credit due to a limited or no credit history. Residents who pay their rent on time month after month should be rewarded and not overlooked simply because they rent instead of own the place they call home.”

Source: Experian

Renters take note: patch and repair to reclaim your full deposit

(ARA) – Whether you’re renting a truck or paying for movers, costs can add up quickly when you’re changing residences. If you’ve been renting, the full return of your security deposit may come as sweet relief as you move from one place to the next.

Because you’ve been without that healthy chunk of change since moving in to the place you’re now leaving, anything less than a full refund would be a disappointment. It would be a shame if a spot on the carpet, a broken blind or knick gave your landlord a reason to withhold a large portion, or all, of your security deposit.

With a careful eye and some elbow grease, you can ensure that you get your full deposit back and put the money to good use during the next phase of your life. Home improvement experts and authors of “Dare to Repair” Julie Sussman and Stephanie Glakas-Tenet teamed up with Lowe’s to offer the following tips for getting your full deposit back:

* Work with your landlord. Obtain a list from your landlord that defines normal wear and tear, as well as tasks that must be completed upon moving out. If possible, have your landlord do a walk-through with you before moving out. If not, take photos so you have proof of the condition your residence was in when you left.

* Pack first, clean later. While cleaning and making minor repairs are integral to getting your deposit back, it’s a lot easier to do once everything has been cleared out of your residence. A home improvement store like Lowe’s will have all the boxes and moving supplies you may need.

* Dust and vacuum. Do not limit to just floors and obvious places. Dust light fixtures, ceiling fan blades and around the windows. Vacuum closets and under appliances.

* Clean appliances. Check the manufacturer’s website for instructions on cleaning the oven. This can take hours, so budget your time accordingly. Clean the refrigerator with a warm, soapy rag and move shelves to be cleaned to the sink. Dry the shelves before returning to the fridge. A handy trick for cleaning microwaves is to fill a microwave-safe bowl with water and half a lemon and heat it for a few minutes. Remove the bowl, wear an oven mitt and wipe down the inside with a wet rag. Clean the exterior of your washer and dryer and remove lint.

* Make sure the kitchen and bathrooms are spotless. Use specialty cleaners for toilets, sinks and other surfaces if necessary.

* Touch up walls. Use lightweight joint compound for nail holes and wall repair patch over larger holes. Let the filling dry, sand and paint. For cracks, use wall repair tape, let dry, sand and dust. Reapply and follow the same process before painting. To find the right paint, take a chip of paint to a home improvement  store and have it matched to the original paint color. Consider a one-coat-and-you’re-done paint like Valspar Signature, which is carried by Lowe’s, to save time.

* Clean carpeting. Before spot-cleaning the carpet, test the carpet cleaning product in an out-of-sight area.

* Replace broken items. Look for burnt-out or broken light bulbs both inside and out and replace. Check for blinds and shades that are broken.

* Clean up outside. Pick up trash. Mow and sweep if necessary.

* Donate items you don’t want or need. Look for local charitable organizations that could use the items instead of throwing them out. Ask for a receipt so you can write off your donations on your taxes.

For more help with your moving needs, visit your local Lowe’s or lowes.com/moving.

Courtesy of ARAcontent

Renting Versus Buying: A Guide to Help You Decide

(ARA) – Buying a home is one of the most important decisions a person can make. After years of living with parents, with college classmates in dorms, or alone in an apartment, the time may come that buying a house or condominium will improve one’s financial stability and sense of personal security.

“There are advantages and disadvantages to both purchasing a home for a primary residence and renting temporary living quarters,“ says Peter Palko, adjunct instructor at Brown Mackie College — Findlay. “I recommend that buyers take a broader, more flexible approach to buying property by maintaining alignment with their short and long term personal and financial goals. Spend as much time and effort shopping for a mortgage as you do shopping for a house.”

While renting does have its benefits — for example, fixed costs for the lease term, generally less work in property maintenance, and smaller upfront investment — Palko believes that the advantages for buying outweigh the disadvantages.

“The bottom line is, a person will own something with equity growth potential, tax advantages and opportunity to build a respectable credit history,” says Palko. For the first-time buyer, Palko advises the following: “Educate yourself on the types of homes, market conditions and tax implications. Is it a ‘buyers’ or ‘sellers’ market? And finally, secure the help of a professional real estate agent — a realtor who is a buyer’s agent who represents the interest of you, the buyer.”

Once you decide it is indeed time to buy a home, the next step is to decide where to live, and start saving. “Before deciding to buy a home, you need to take time to reflect and plan,” says Dan McClish, Director of the Business and Accounting Technology programs at Brown Mackie College — Akron. “Make a list of the things in a house that are important to you.” These items can include the quality of school districts, proximity to stores, hospitals and access to public transportation.

Taking a detailed look at the overall market in the area is important. “If the market area is developing and showing signs of becoming a major commerce area in the near future, then it may be the best time to invest in a home,” says McClish. “However, if the real estate market has remained stable over time, or has decreased, then you may want to consider renting for now.”

Regarding finance, a first-time home buyer should start saving today by setting aside at least 10 percent of his or her income towards the down payment on a future home, according to McClish. “This will give you a purpose and a goal toward home ownership. Even if you are currently renting, chances are, you will eventually want to buy a home. As you aim toward saving for the down payment, start looking at areas in which you would like to live.”

One final piece of advice: “Do not make purchasing a home a last-minute decision,” says McClish. “Do some investigation, and it will pay off in the future.”

Courtesy of ARAcontent

Rent vs. Buy

Q: How do I choose between renting or buying?

A: Owning a home offers tax benefits, as well as the freedom to make decisions about where you live. Homeowners, unlike renters, can secure a fixed-rate loan and lock in their monthly payments, so they can make investment plans knowing their expenses won’t change substantially. Renters are at the whim of their landlord, who can raise the rent each year without a renter’s input. Homeowners, on the other hand, are in control of their property and decide whether they allow pets, decorating, or permanent improvements.