Making the Decision Between Renting or Buying

The real estate market is not going to be depressed forever, it will come back. I still think it is better to own then rent.

Dilemma

Dilemma

I know these are some tough times right now, not just in financial matters, but in decisions we need to make about the future, lately the future seems so uncertain. Here on Amelia Island we can see an enormous inventory of houses that have turned rentals.

I was having a conversation with a customer the other day and the subject of renting vs buying came up. Of course, I still maintain that owning is far better then renting. I want to share some of the conversation with you, it may help you in making your decisions.

We all know that the main reason for buying is the equity that you build up in your home. That is the money that you pay in the down payment and monthly in payments, you are actually paying down the balance on your mortgage. People have used the equity in their homes to establish lines of credit that can be used for other purchases or projects. I will admit that LOC’s today are few and far between, but I believe that in the future we will see some return of them. Next on my list is simply the pride of ownership. I have never liked having someone else tell me what I can and can’t do, especially where I live.

Another reason to own would be you are not making the landlord rich (well with rising taxes and premiums a little less these days). There are many real estate investors who have actually paid for properties without pulling one dime out of their pocket. They have had tenants who made the payments for them. While someone else was making their payments they would watch their bottom line, (net worth) increase.

Now, there is nothing wrong with this and I take my hat off to these investors who had the foresight to accomplish such wealth. My question would be, why don’t you consider doing the same thing? If not purchasing investment properties then the home you purchase for yourself is an investment and you should see it as such.

Owning real estate may not be for everyone. I have known people who would simply prefer to rent and not have to worry about major repairs, taxes and insurance, for them it is better to leave those issues to someone else. I won’t deny that those reasons don’t carry a certain amount of merit. I have also known people who have lived in a rental house for many years and loved every minute of it.

The real estate market is not going to be depressed forever, it will come back. I still think it is better to own then rent. The rental market today is flooded with homes available at very reasonable prices. As home sales have become more and more stagnant, many owners have put their properties on the rental market in hopes of having some income to help cover the monthly nut. There are many choices available on the rental market. I also submit that there are many good buys on the market today. If you can purchase a property today at below market price then I would suggest doing so. One day you will be able to cash in on the equity you have built up rather than look for another rental.

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4 Comments

  1. tommylee

    It seems that the decision about buying or renting is pretty much made for people at the moment since calculating asset building in uncertain times via real estate may be a gamble at the least and an ever growing tax- and insurance burden at the most while banks are very cautious about mortgages if at all even considered.

    The free and cheap money times are over even with a bottom that has fallen out in the real estate prices.

  2. stringdude

    Nick I absolutely disagree with you on your statement that buying is much better than renting. Here are some of my arguments for the opposite:
    • When the American Dream of homeowner ship was pushed upon the American people speculation was not the motivator. It was the old fashioned sense of a home is a savings account for later. You paid the lender to live there and if you did that for 30 years or so, it was yours and you could sell it to finance your golden years with. The quality of the product was therefore based on a 50-100 year lifespan. Equity based on variables was not an issue. Equity financing was a greedy bank invention that came years later.
    • Now treating the house as a golden parachute savings account to finance old age still seems to be a good and solid idea, were it not for the quality of construction that does not offer a 50-100 year lifespan anymore. In addition, technology has moved into the fast lane, meaning a kitchen dating from the 1990's does not do it anymore in 2010. There is a move towards generational home designs with double kitchens for example. In other words anyone buying now needs to get the property at such a low price that it allows for these costly additions, renovations or restorations in the future.
    I know of a friend in Europe who just bought a Florida mansion, appraised a while back at $2.75 million for $196,000!! In that situation buying is a definite option.
    Mind you however I haven't even talked about property taxes, major repairs, storm insurance premium, and all other expected and unexpected costs that come with homeownership, down to the point that your car insurance premium is higher if you own a home. There is no blanket formula to suggest buying or renting. It depends if you're just starting in life or if you're ending up a career, it depends on children living with you, it depends on where the house is located (as you Nick, I lived my whole life near the ocean; it's much more demanding on a home). In this stage of the economy buying is only good for investors in real estate, renting means for mostly everyone else a much better handle on their finances.

  3. achoubeach

    I have a problem with the fact that it will take us past 2013 before we even know where the bottom in the market might be. If you rent now, sit it out for a few more years. I'm going to rent here and buy farm land near the Pacific in Costa Rica.

  4. achoubeach

    I have a problem with the fact that it will take us past 2013 before we even know where the bottom in the market might be. If you rent now, sit it out for a few more years. I'm going to rent here and buy farm land near the Pacific in Costa Rica.

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