Nov 16 2007
Does Renting Make Sense?
One of the most difficult decisions, unless you are an investor, comes when you have to decide whether to rent or to buy a home. The first thing you should ask yourself is what your debt to income ratio is and what a house payment would do to your cash flow. In terms of a mortgage payment, a broker will always tell you that cash flow is bliss. It is better to pay off your credit cards and vehicles then to put down a large down payment on a house.
Now, with the market conditions currently as unstable as they are, there are a lot more options for people to buy rather than rent. For example. Instead of renting a 3 bedroom apartment for $1000 - $1400 a month, you could build some equity in a home with 3 bedrooms and a bath and a half. Although this may not be your dream house, you are putting money in your pocket vs the pocket of the landlord. With renting you can upgrade your unit and pay more, still not collecting any equity. When you outgrow your home, or make a larger salary, you can sell your home and use the equity as a down payment. Realize the payment of a home vs renting at that price is nearly a wash, and guess what, you get your money back.
A Buyer’s Market
Until recently, houses continued to rise in value and the market was very generous to people buying and selling in short sales opportunities. With the home I purchased 3 years ago for $105,000, we had it appraised recently at $125,900 and listed it to sell for $117,900. Being that we undercut the market value, and were in the area of a lot of first time homebuyers, we received offers to buy from people without them even seeing the property. If one fell through we had 2 others to back it up. We did the little extra to make the home appear nicer and complete as compared to the others on the market.
Renting makes sense for some with reasons of not qualifying for loans, or insufficient credit, but otherwise there are some great deals to be had that can fit any budget, especially if you are currently renting. As an example. the house we currently live in was listed originally at $219,900. It sat on the market for just five months and we offered $175,000 and they countered with $185,000. We accepted the offer, asked for a homeowners warranty, and the riding lawn mower and closed two weeks later.
Don’t ever assume the need to pay full price for a home in this market. Rarely will a house come along that is priced perfectly because everyone that uses a realtor understands they have fees and commissions to pay out on top of their selling price. Sellers are purposefully over pricing their homes to match the old booming market as well as because they know people will low ball an offer and this way they might come back to where the house should be priced anyway. As a way to price homes currently, always ask for at least 8% less than what they have listed for. It will if anything get the seller to know that they are overpriced and could possibly lead to an accepted offer. I am not one to play on people’s emotions, but when I have seen a house sitting for a long time I immediately ask myself “how desperate are these people to sell.” I’ll leave it at that.
As a point of information, it was recently reported that there are 10 months worth of homes currently on the market and no sign of a let up for the downtrend in the market. Keep in mind, for buyers there is no better time to buy. Ask for the world, you just may get it.
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I have developed my own theory on renting vs buying and I am interested in your opinion. If you have time please checkout 555 theory. I agree with your posting in general but there are some important variables that must be considered before purchasing - especially when the decision isn’t so clear cut.