I hope you found last week’s letter interesting. If you know someone that could possibly
benefit from that information, please feel free to pass it along to them! This week’s article discusses the pros and
cons between renting and buying. I hope
you enjoy it!
RENTING vs. BUYING
We all knew that the recent rock-bottom mortgage rates were
too good to last forever, and now they are starting to creep upwards. While some people may find this upsetting, it
should not be viewed as a bad thing—it is quite the opposite! The slight rise in lending rates means that
the government is beginning to release its hold on the lending programs, which means
the real estate markets are finally coming back to life! This is just another sign that our economy is
getting stronger.
However great the market has been, the fabled real estate “steals”
will not last forever. The short sales
and foreclosures are becoming fewer and farther between, and a $200,000 loan
today might not be able to purchase the same home tomorrow…or more
realistically, one year from now. So, if
you find yourself straddling that proverbial “to buy or to rent” fence, perhaps
you should seriously consider answering that question…today!
To Buy or to Rent: What Should I Do?
For every advantage, there is a disadvantage, and obviously
the opposite is also true. Let’s take a
look at some of the pros and cons of being a homeowner and a tenant.
One of the biggest deterrents to becoming a homeowner is the
initial cost of procuring the loan: the
massive down payment typically paid at closing.
Let’s face it, not everybody has several thousand dollars sitting in the
bank to chuck down at the closing table.
However, the lenders have realized this and have put together some
pretty enticing loan packages to reduce the upfront investment for the
buyer. If you qualify, there are still
some tremendous deals lurking around. A
few even offer 100% financing! Yes, that
almost sounds like a car advertisement, but it is true. 203k loans can be 100% financed AND
additional money for specific home repairs can be incorporated into the loan,
too. Again, certain qualifying criteria
need to be met by the applicant, as well as the house. Another great loan package is the USDA. This one is location and income specific to
pre-determined areas categorized as rural…and these areas are going to be
redrawn later this fall. The SC Palmetto
Heroes loan is a great program for designated individuals who do a great
service to our communities and in return receive a smaller pay ratio. Qualifying individuals include, but are not
limited to firefighters, law enforcement officers, teachers, and EMTs. Finally, there are the VA loans that benefit
our active and retired military personnel.
The SC State Housing Authority has some incredible programs
for individuals who qualify. Their
“first-time” home-buyers can receive up to $5000-$8000 in closing fees. Depending on the specifics of the home and
the individual purchasing it, some of these fees will be repaid during the term
of the loan and others are actually forgivable!
Financing aside, let’s look at some more specifics of owning
and leasing.
Being a tenant can mean
living by someone else’s rules, but it also does have one major freedom:
the ability to move with very few strings
attached.
This especially holds true at
the end of the lease, when all a tenant stands to lose is a security deposit
(unless he was extremely naughty and litigation is needed!).
However, if you intend to stay at least four
years in one residence, you can save more money by owning the home.
During this time, you will build equity in
the home, which will provide a “cash cushion” between the debt owed and the
value of the home.
In addition, your
credit can become even better, and, depending on what your accountant does,
mortgage interest might be a legitimate tax deduction.
The longer an owner stays in the home, the stronger
the equity position becomes.
If he
should move after that four year mark and opt not to sell, the home could
easily become an investment property that supplements an investment
portfolio.
More tax deductions can occur
in this situation and sitting down with your tax advisor can help you take
advantage of it all!
When renting, one’s expenses are relatively fixed and budget
planning can become a much easier task.
However, with no risk, there is no reward! After all, that IS what an investment is,
correct? You put your money somewhere
(hopefully with a calculated risk/gamble) in the hope that it will produce MORE
money. Paying the monthly rent is not an
investment. In the end, you own
nothing. There is equity built, but it
is not the renter’s; it is in the homeowner’s pocket.
It is true that a renter has less work to do in order to
maintain the home, which means there is more time to devote to the things that
are more fun to do (and less stress!).
However, this, too, comes at a price.
By being a tenant, you must abide by the rules set forth in your
lease. If the rules are broken, generally
the penalties are monetary fines. There
may be freedom to move at the end of the lease, but during the duration of the lease
term, tenants are generally very limited in what changes they can make to the
property, even those that are considered “improvements” in their eyes. One of the easiest examples of this is
painting. Most rental homes come in very
neutral, impersonalized color palettes.
Rental homes leave very little room for individualistic decorating
ideas.
Renters do not receive any tax benefits or advantages. ‘Nuff said.
Finally, in today’s world the family pet often plays a more
important role in the family than pets from a few generations ago. Today, those pets are seriously considered to
be family members. This holds true in
households with and without children.
More often than not, pets come in multiples, and not just in numbers,
but in breeds and sizes! However,
homeowners’ insurance companies are taking a stiffer stance when it comes to
the faithful family animal. The
aggressive dog breed list is growing by the day and the animals that find
themselves on the list are becoming banned from rental properties. Also, policies that limit the number of cats,
or the gender, are becoming quite common.
Finally, the size of the animal is a factor now, too. At this point in time, the magical number
seems to be 30 lbs, but who knows what tomorrow will bring. Homeowners do not need to worry about these rules
and regulations.
Being a homeowner certainly has its positive and negative
aspects, as well. There can be variable
costs each month which can make it difficult to plan a budget, since the burden
of all repairs generally falls on the homeowner. However, there will be many months where
these costs are low. The equity in the
home will do one of three things at any given time: it can increase, decrease, or remain the
same. With the strength and health of
the market today, the trend in value seems to show that it is finally beginning
to increase.
Besides the large initial investment involved in purchasing
a home, the second leading “detrimental” factor is the relocation issue and the
prevalent question:
“What if I can’t
sell my home?”
The worst case scenario
is that you can’t sell your home AND you can’t afford two mortgage payments.
In this situation, you can turn your home into
an
INVESTMENT home and supplement your retirement securities!
Before getting to that point, though,
remember…there were specific reasons that you bought the home, so it will most
likely be attractive to someone else!
However, Sarah Turocy, with Sloane Realty, specializes in working with
owners and their investment properties.
She can be reached by contacting the Sloane Realty office at (843)
795-4484, or online at
www.SloaneTeamRealty.com or
email!
The most advantageous aspect of home-ownership is just the
plain and simple fact of freedom: the freedom to decorate and remodel at free
will! You do not need permission to
paint. You can create your dream home
and live in the pleasure of creating your personal happy space all around you!
Whether or not you live in the home or use it as an
investment home, there are wonderful tax advantages that can be utilized. Your tax adviser can certainly guide you to
these benefits. Remember, the “magic”
number to making home ownership work for you is four years. If you think you will stay put for that
length of time, you will save more money if you purchase!
Now, this website isn’t the “end all be all” for definitive
mortgage payments, but it can give you a realistic estimate on what your
payments could be.
Check it out—
For more information about the mortgage aspect of the
equation, I would suggest contacting Dan Crance with Shelter Mortgage
Company.
He can be reached at
843.614.8869 or on the web at
www.DanCrance.com
One basic, common necessity of ALL people is to have a place
to live, a place to call home. This is
true if you are a tenant OR a homeowner…and it is equally important no matter
which category you fall into! If I can
help you at all with any aspect of securing a place to live, let me know; I am
excited to help!
Bo Turocy
Broker Associate
Carolina One
Real Estate
843.476.9526
(mobile)
