Advantages to Renting -vs- Owning in Today’s World

Problem: A debtor cannot afford their mortgage payments but is unwilling to give up their home.

Suggestion: Often, the reason for this behavior is because the debtor believes they are living the American Dream (by being a homeowner) and if they give up their home, they will lose their status and their dream.

One way to help them face reality is to give them a copy of the article below.  CLICK HERE to download the PDF so you can print it own and provide to your clients who need this information.

Also see:  http://www.businessinsider.com/15-signs-that-the-us-housing-market-is-headed-for-complete-and-total-collapse-2010-8

Are You Losing Your Home to Foreclosure?

Things may not be as bad as you think

Less than a decade ago it was the American Dream to own your own home.  However, back then, no one heard much about owing more money on a home that it was appraised at.  Home values back then appreciated, not depreciated like they do today.  Therefore, the new American Dream has changed to “rent and save money.”

Warren Buffet, the financial advisor and billionaire, recommends renting.  In his biography entitled “The Snowball,” it states:

“Warren rented because he didn’t want to tie up his money in a house at that time, after all, he needed to live off of the interest on the stocks he owned.  This was highly unusual at the time, especially considering that even at 26, he would have been considered rich by most standards. So all of you renters out there that claim your way is the best… you might be right, especially if you have investing skills like Warren did.”

With this thought in mind, let’s uncover four popular myths surrounding buying a home:

Myth #1:  Renting an apartment is like throwing your money away

Renters pay for one thing every month: shelter.  Renters also pay a reduced rate based on national statistics.  Some could argue that homeowners throw their money away for the first five years they own a home because they simply give money to the bank for the privilege of borrowing money.  Many buyers in the past 5 years have seen little or no appreciation and in fact, the opposite has occurred.  Renters on the other hand do not pay interest to a mortgage company, do not pay property taxes and do not pay maintenance fees.  Renters simply pay r-e-n-t.

Myth #2:  It Costs the Same to Buy as it does to Rent

Examine what it costs to first buy a home.  The average buyer pays a minimum of 5% of the purchase price of the house to close the loan.  On a home that costs $150,000, that amount is $7,500. A renter generally pays the first month’s rent, last month’s rent and possibly a security deposit.  On a rental that rents for $1,000 a month, that total is $3,000.  The renter is already $1,500 ahead of the buyer.

There are also other costs a buyer is responsible for that a renter is not.  There is mortgage interest, property tax, insurance and maintenance.  These costs can add up and may even increase significantly over a period of years.  In addition, buyers are responsible for maintenance and repairs that could cost them thousands of dollars a year.

Myth #3:  Houses are a Good Investment

In the past 12 months there have been a record number of foreclosures in many states across the U.S with a high concentration in Florida and California.  This record-setting trend could possibly continue for some time into the future.  During the housing boom, many buyers believed that housing was a great investment.  For many it was.  But the boom turned to bust for millions.  No one at this point can foresee the future t o predict what will happen to the housing market.  However, by renting, you will not be at the mercy of the economy.

Myth #4:  There are Income Tax Benefits When You Pay Mortgage Payments

Mortgage interest can only be deducted from taxable income.  What this means is that for every dollar you spend on interest, you save about 28 cents.  Most buyers are going to pay more money for the principal, interest, taxes and insurance than they would for rent.  You can calculate the amount of money you can save with your taxes and then determine if this myth is fact or fiction.

Summary

There may be a time when it is better to buy a home than it is to rent but today is not that time.  However, if you can get a great deal on a home or a foreclosed piece of property, you should always take that into consideration regarding your decision to purchase rather than rent.  Until the economy returns to where it was, there are a lot of banks and mortgage companies willing to accept your money every month.

3 Responses to “Advantages to Renting -vs- Owning in Today’s World”

  • This article is off the wall compared to the traditional thinking that drives most people to want to buy and own a home. My wife and I have owned several properties over the past 30 years. In the past 2 years we’ve divested ourselves of all our real estate and are renting. We didn’t intend to do this initially. Market forces drove us to it. But now, looking at it from a new perspective we don’t have any problem renting. Everything you stated above is accurate, and we are out from under huge debt burdens. Simply stated: “It’s no longer our problem”. We just pay rent, live in a nice place, take as good a care of it as our own home, and will continue to rent until the economy is well on its way upward again. I just read an article that the NAR believes will drop another 2% to 10% in 2010 through 2011. Doesn’t sound like we’ve hit bottom yet. I watch several financial shows each morning and the consensus is that we’re not out of the woods yet. We’re going to rent for awhile, save our money, get out of the rest of our debt, and when the time looks right to jump back into real estate ownership, we’ll do it. It is more of a psychological adjustment than a wise investment decision. If you could make the decision whether or not to buy or rent without any emotion involved, I believe that today you’d chose to rent. Just my humble opinion. Good article. Thanks, Jeff

  • Thank you so much for your comment. You made my day because you are exactly the type of person I wrote the article for. I am so glad that you see a light at the end of the tunnel. Thanks again for stopping by. Keep in touch. Victoria Ring

  • Lynne Masters-Lee:

    Truly food for thought, and neatly dovetails with something my accountant said to us when we filed our taxes. I will be telling people I know that are panicking about losing their home that this may be the break they need to get back on their feet, at least in this market, and will certainly provide a copy of your pdf article to those that need the reassurance.