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The Question Everyone’s Asking: Rent or Buy?

October 21, 2010 Leave a comment

In the present state of our economy, with rising foreclosures and plummeting home values, the traditionally held view of homeownership as the American dream is being challenged. More and more people are asking themselves whether owning a home is truly in their best interest.

The key question people are asking: Is it better to buy during a time of economic turmoil, or is renting a better deal?

Cape Cod real estate expert and agent Danny Griffin says that now is the ideal time to buy a home, as long as the potential homebuyer has the capital to make that investment. He says that “We do get more calls than we’ve ever had for rentals, but first thing we’re going to tell them, or ask them, is have you ever sat down with a mortgage broker and asked, ‘Can I qualify for a loan?’ Because there is no better time to consider buying.”

Caitlyn Sweeney and Joe Maddalena are looking to buy a home in Marstons Mills, Massachusetts. Both work full time, Joe as an assistant golf course superintendent, and Caitlyn as a teacher. The pair want to leave the rental market and take advantage of low home prices to purchase their first home. It is not only the state of the economy and their desire to be done with the rental process that is motivating their desire for homeownership; there is also a certain satisfaction of owning something that they both hope to achieve.

“You’re putting a lot of money into something that’s not yours,” Sweeney says of renting. “You don’t get to change anything, decorate the way you want to, you don’t have a yard, you don’t have extra rooms.” Sweeney is looking forward to taking the new property they purchase and putting her own touch on it.

Joe Maddalena says that they have considered their finances carefully in order to come to the conclusion that they are ready to take the next step towards homeownership. “I think we’re both at an age now where our jobs are secure,” he says. “We’ve saved up some money and houses are at reasonable price.”

Griffin says that the “smart buyer is coming in now and saying, okay, finally, I can buy these at a normal price again and it’s affordable for me and I can live within my means.” He states that “It’s already happening in most of the majorly hit markets in the United States, especially Las Vegas, California, Florida — all of the over-inflated places like that are beginning to hold. You’re seeing people come into that marketplace, whether they be first time homebuyers, second homebuyers, they’re beginning to say ‘Hey, this is a reasonable price and I need to be invested in this now.'”

Trulia, an online real estate tracking site, recently released its quarterly Rent vs. Buy Index.  According to the Trulia index, homeownership is cheaper than renting in Arlington, Texas; Fresno, California; Miami and Mesa and Phoenix, Arizona. Tara-Nicholle Nelson, a real estate broker and lawyer focusing on consumer education at Trulia, says that in these areas, “we see a real pattern of foreclosure hot spots. Prices have dropped a lot in these cities and their rental markets have seen a huge influx of renters.”

Though the traditional American dream is to own a home, there are many benefits to renting. There is no property tax, no maintenance costs, and no financial burden of paying for miscellaneous home improvements such as a new roof or dishwasher. There are some places where renting may be a better and more affordable option.

A few of the top cities where rents are cheaper than buying include New York City; Seattle; Fort Worth, Texas; Omaha, Nebraska and Sacramento, California. What do all of the top-ranking cities on the renting-is-cheaper-than-buying side of the index have in common? They are major regional centers of employment.

According to Nelson, “Homebuyers want to live where jobs are and where they believe they’ll be able to get jobs in the future.” The economic advantages of living in these areas contribute to the disparity in rent and ownership costs, and make taking advantage of low rental rates the best option for a lot of people.

Nelson makes sure to point out that the index is just a “snapshot in time,” and should not dictate what is best for every family or individual in terms of renting or buying. She says that “Just because a place is on that list doesn’t mean it’s unwise to buy depending on your personal circumstances.” Other factors to consider when debating whether to rent or buy include financial assets, time commitments and stability.

To read the original article, click here.

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Rent vs. Buy – Jill Schlesinger from CBS Money Watch weighs in

October 15, 2010 2 comments

The following is a clip from a conversation Jill Schelsinger of CBS Money Watch had with a New York City resident in the newly opened Highline Park on Manhattan’s west side. In the clip, Jill interviews Matt, a young renter who says his primary financial goal is to save to buy a house. He is currently trying to save around $100,000 for a down payment, and has no debt.

Rent vs. Buy

When Jill asks, “Does it make sense for you to own something now instead of rent?” he replies, “I don’t know.”

Though people often say that renting is just throwing money out the window, sometimes renting really makes sense. For example:  If you are saving for a half a million dollar house that requires a $100,000 down payment, there will be additional costs. On top of the down payment you are going to have a mortgage and insurance, on top of which you will pay taxes as well as any maintenance costs.

Jill recommends going through the exercise of finding out what the comparable rent would be to get pretty much the same thing. If the numbers come out such that owning will be $6000 a month and renting will be $3000, it might not make sense to buy. Keep renting! Jill also points out that sometimes it doesn’t make sense to own if you live in a big city where owning is expensive.

If you use the extra money well, by putting it in savings or in a 401k, then the option to rent makes sense. In this case, Jill says to rent until it doesn’t make financial sense to rent anymore, or when you find something you love and the price differential is not that great.

There is no clear answer to the rent vs. buy question. It all depends on your financial status, where you live, and what your goals are. Jill Schlesinger makes a good point: Owning a home may not be your best bet in every case. To make the most informed decision possible about how to achieve your goals, do a cost comparison between renting and buying, factoring in your own personal financial circumstances. Careful consideration and an open mind will allow you to make the best possible decision.

Watch the 3 1/2 minute video on CBS.

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