Motives matter in buy vs. rent
Letter to the Editor
By Inman News, Wednesday, March 4, 2009.Re: 'Is homeownership a joy or a burden?' (March 3)
Dear Editor:
Is homeownership a joy or a burden? That all depends on your motives and your reasoning for owning property as opposed to renting. If one is quite comfortable paying $1,000 per month in rent then why not pay the same or even a hundred dollars more and own? Historically, real estate has always appreciated in the long term, and there is pride in homeownership.
As far as the market is concerned, it all comes down to this: You are either in the market or you are not. I rented for four years and paid $48,000. Had I purchased a house being built across the street for $165,000, a year and a half later (I could have sold it) for $295,000.
I would never recommend anyone going from $1,000 to $2,500 per month.
Tom Ikonomou
Century 21 Riverside Realty
Kamloops, Canada
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Submitted by William Metzker on March 4, 2009 - 1:19pm.
Read Niall Ferguson's The Ascent of Money and you will be less convinced of historical appreciation. A year and a half is not long term. My sister-in-law bought a Las Vegas condo a year and a half ago, and guess what?
I believe that as real estate agents, we need to talk up the value of home ownership as something other than an investment. A landlord can't evict you, for example. You can drill as many holes in the wall as you have pictures. And so on.
But we all need to get off the investment wagon, if for no other reason than the appreciation angle may not be true.
Submitted by Peggy Dursthoff on March 4, 2009 - 2:12pm.
Although I agree that home ownership is more than just an "investment" and that there are other pluses to ownership, such as the write offs on mortgage insurance and property taxes. I think we can’t forget that historically home ownership has been a great long term investment. Recently in talking with a client who was thinking of selling, she disclosed that they had bought the home $14,500.00, and yes that included the garage, 50 years ago. A home now worth about $230,000.00 on the open market. This brings home the point that real estate historically has been a LONG term investment. However, current statistics state that home owners stay in their homes on average only 7-10 years. Making home ownership more of a medium investment instead of long term and therefore buyers should be counseled on the value of looking at real estate as an “investment” as well as a “home”. By helping buyers stick to their criteria and do their due diligence for their purchase as well as understanding their home ownership goals, real estate and mortgage professionals can help get them into a home that will truly be an asset.
Submitted by TReXGlobal on March 4, 2009 - 5:20pm.
Tom has given a great example of a tenant subsidizing property ownership and making the property owner rich. If you are renting a property for $1000 and the cost of ownership is little above this, it is better to own the property. Most savvy real estate investors know this and acquire properties where cash flow is break even to slightly positive. By holding these properties for years, they let the tenant buy them that property.
Niman Singh
www.TReXGlobal.com/Partner - Real Estate Web Tools for Marketing to Investors
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on March 6, 2009 - 6:05am.
Three points:
1) "I rented for four years and paid $48,000."
This is a good observation and renters need to understand that, not only are they throwing this money away, they're also not taking advantage of any appreciation and tax deductibility (which, depending on your financial picture, could mean hundreds or even thousands more in refunds - check with your tax advisor). Today, affordability is at its highest, prices and interest rates near bottom.
2) "Had I purchased a house being built across the street for $165,000, a year and a half later (I could have sold it) for $295,000."
This is a dangerous blank statement to make in this market without qualifying the details and time this occured. In today's market, a typical buyer is highly unlikely to yield this kind of return. After all, according to government data (USA), home price appreciation between 1979 and 2000 was 6.1%/yr. Obviously, being that home buying in America is highly leveraged, the actual cash on cash return is much higher depending on the downpayment and other factors but, you should determine these numbers for your case or consult your financial advisor.
3) I would never recommend anyone going from $1,000 to $2,500 per month.
This is a good point weather you are moving from a rental to home ownership or trading up. Actually, prudent lending practices should not allow them to underwrite a loan of this magnitude unless you can clearly document your current (and projected) financial picture and prove you can afford it and make these payments without them adversely affecting you.
http://MiamiRealEstateKing.YourKWAgent.com
Certified Distressed Property Expert
Miami-Dade County, Florida.