TUESDAY, APRIL 9, 2013
As an insurance agent, I've heard many arguments over the years for the pros and cons of renting versus owning your home. I've seen situations in both my personal and professional life where each situation was more appealing and had better benefits.
I've rarely met someone who really liked paying rent, because many times it feels like you have nothing to show for money spent. Many renters choose to rent because the annual cost of owning a home includes property taxes, mortgage interest and principal, home insurance, maintenance, and often HOA (homeowners association) fees, all of which can quickly add up. Renters get out a little cheaper over time because there is little to no maintenance cost, interest, and Renter's Insurance is incredibly inexpensive. By the way, if you're renting your current home, did you know we offer Renter's Insurance? Give us a call so we can help make sure you're protected.
Ultimately, whether renting is better than buying depends on many factors, particularly where you live, how long you'll stay in your home, and how home prices compare to the price of comparable rentals. It's a personal decision, but here are a few thoughts to get you started if you're trying to make a decision:
- The 3-Year Rule - Before the housing market meltdown, the rule of thumb used to be: "If you're going to stay put for more than 3 years, buying is better than renting." According to Zillow, a real estate listing service, this is still true, more or less. Zillow says that 75% of the country still has a 3 year "breakeven" point. That means that in most real estate markets, a homeowner who buys a home and stays in it for three years should--fingers crossed--break even if they decide to sell it.
- Price-to-Rent Ratio - One way to tell if it's better to rent or buy is to figure out the price-to-rent ratio. This will help you determine if homes in your area are fairly priced and if it may make more sense to buy. To figure out the price-to-rent ration, find two similar properties, one for sale and one for rent. Divide the sale price of the house by the annual rent of the rental property. (So a $100,000 home vs. a $500/mo rental [$6,000 annual] = 16.7 price-to-rent ratio). The normal price-to-rent range nationwide is between 10 and 14. A number above 20 means the monthly cost of home ownership will exceed the cost of renting. The higher the number, the more it makes sense to rent instead of buy.
- Know Yourself - Of course, these are purely financial ways to make the decision. There are other factors, like property maintenance. Do you enjoy mowing the lawn or shoveling snow? Do you know a handy fix-it guy or are you a plumber? If so, you might enjoy owning your own home. If all that sounds like a pain, you would probably prefer to rent a property over owning a home.
- Know What You Can Afford - As of early 2013, interest rates are low (for now) and home prices are much lower than at their peak before the crash. Some people will tell you that now is a good time to buy. The reality is, only you can decide if it's the right time to buy or even to rent. If you are thinking of buying a home, know how much you can afford and understand all the facts and costs upfront. Factor in your monthly mortgage payment, closing cost, along with a down payment (aim for 20%). You'll also need to pay for inspections and appraisals on the property, along with lender fees, title fees, and legal fees.
In case you're in the process of making this exact decision right now, I wanted to give you these few samples of ‘food for thought'. No matter what, when you're making this decision, ask a lot of questions and do what's best for your situation. Each option has many benefits and I know you'll make the one that's best for you! When you do, remember to call our agency. We're here to help you protect all the things that matter most.
Posted 2:50 PM
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