According to the LA Times, a lot of would-be home buyers are wondering if they should buy or rent in the Los Angeles area. They're weighing the new higher prices against interest rates still near record lows, deciding between the flexibility of renting and the potential long-term payoff of homeownership. And many are looking at a job market that still feels a little wobbly and wondering whether now is the right time to take the plunge.
In a follow up to Lack of Affordable Housing in Ventura County, Trulia has a piece about renting vs. buying and it shows that if you rent at $1,500 per month, in ten years that rent will have cost you $232,932. That’s enough money to buy a house.
Why would you rent instead of buying?
- Flexibility – if you don’t know how long you will stay in a particular area, renting works well
- Career stability – many young people seem to change jobs frequently, renting works well
- Credit - is either poor or not well established. The good news here for renters is that on time rental payments can establish credit.
- Income instability – It is hard to make a long term commitment on a house when you have worries about a stable income.
- No maintenance expenses – when something breaks, just call the landlord. Maintenance can add significantly to the cost of home ownership.
- No down payment – while zero down payments are available, banks like to have the homeowner put some skin in the game. 10% to 25% was the usual down payment.
- You may be able to rent an apartment with all the amenities you desire like a pool, gym, social meeting area, and conference facilities.
- The chief economist at Trulia, Jed Kolko regularly produces a Rent. Vs. Buy Index for 100 markets across the U.S., including L.A. He notes that home prices have been climbing faster than rents, "The gap [between buying and renting] will continue to narrow," he said.
And the reasons for buying:
- The biggest is equity build. Mortgage payments go to the bank and you gradually pay down the mortgage.
- Landlords generally raise rents, especially if the market for rentals is tight as it is now. If you are already paying a third of your income for rent, meeting the rent can get tougher. A mortgage payment is fixed for 30 years.
- A symptom of inflation is housing going up in price over time. Many cities, before the recent housing downturn, experienced 7% increases each year, which doubles the house price in 10 years and increases your equity.
- Rental payments are not tax deductible. The interest paid on a mortgage is deductible on your tax return. You can look at it as Uncle Sam helping you buy your house.
- Creative control – you want to paint a wall purple, tear out a wall, hang every picture you have, no problem. You don’t have to get permission. You also don’t hear foot traffic from a tenant up above you or a stereo blasting.
- A house is your castle, your rock. Ownership is stability. A house is private property and for the most part, we still protect private property rights.
- There are new regs from FHA that lower the down payment to less than 3.5%. According to gov, "Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan’
Those who follow home buying closely insist that Millennials want to own a home and what we are currently experiencing is like a dam holding back pent-up demand for housing to the tune of 2 ½ million new home buyers per year. They say all we need is a catalyst.
Coal to Cash Homebuyers, Inc. is part of a nationwide group of thousands of investors who are helping tens of thousands of homeowners every year. We may not be the “traditional” route, but we CAN help and we can do it quickly!
Give us a call today at 805-426-9988 to let us know what YOU need help with!