House Payments Better than Rent?

House Payments better than Rent?  My most recent buyer's made the decision to move from Renters to Buyers because of the value of the payment.  They figure they cannot control sales price (overall), interest rates (like the public has any control over that) AND were concerned about the future increase in rents.   For them, it made sense.    For each person, the decision to become a homeowner is personal and needs to fit their own situation.  In light of all the news in the economy, firming up a housing expense that can be very reasonable for the long term may make a lot of sense. 

  • November 22 2011 - Sacramento
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Answers (17)

Cathy:

There are also unknowns in a house payment. I had taxed on one of my properties take a percentage jump in the double digits last year and an increase in insurance costs, driving up my mortgage payment approximately 10% with one month notice. Not all loans offer a fixed base price (below the insurance and taxes), as in the case of an ARM. Also not considered in your uninformative post is maintenance costs (which can be huge or minor depending on the home and your skill set). Another factor is mobility. I could make a much longer list, but my point should be clear without it...

Owning is not for everyone, and agents do not do buyers a favor when the own v. rent proposition presented does not include more than merely the payment.
  • November 22 2011
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As far as rents going up it depends on the area. In Vegas the mortgage payments would be way below monthly rent but here we would not expect rental rates to be increasing but rather predict a decrease.

In Vegas it is still better to buy as you save money on your monthly payments, tax write offs, and rates are super low. Oh and if it ever appreciates its an added bonus.
  • November 22 2011
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Profile picture for the_country_hick
I am unaware of any renter who ever had to pay thousands of dollars for a new roof and thousands more for a replacement septic system or well. Have you ever heard of a renter paying these costs?

I am very aware of buyers who had to pay for such problems and even pay to fix the foundation which moved or cracked.

Monthly payment is not all that a house can cost. That is not even including heat and electricity.
  • November 22 2011
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Profile picture for Roseville Loan Guy
Tiffany,

In California (where Cathy is from) property taxes can not jump like that. They are regulated and generally stay exactly the same. The most they can increase is 2% a year and usually don't even do that.

Also, insurance rarely varies unless you make a lot of large claims in a short period of time.

Sincerely,
Greg
  • November 22 2011
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Profile picture for the_country_hick
A town near me had a massive tax increase one year. The reason was the town had a dam that was in danger or bursting and had to be fixed immediately. If I recall correctly it was either a 35% or 50% increase. Then after the dam was repaired  the taxes went back down to the previous normal adding inflation adjustments.

As a HOA can add special assessments apparently so can a town. It was not a town I live in. I did talk to some people who lived in that town who told about the horrible budget buster and the reason for it. The state demanded the dam be fixed in a very short time and there was only one solution. No, it was not a Cali town.
  • November 22 2011
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I wonder how landlords pay for new roofs, septic systems, property tax increases that tend to be more severe than non-landlords, and all that stuff that goes with owning property!

They must have two, or three jobs, or something. Dang, they're good people.
  • November 22 2011
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@ Greg

Many places that had previously quite set property taxes are not quite so set due to budgetary contraints. In most cases its just a vote to change it (be it legislature, council, general public, etc). Given the state of most governmental budgets right now I wouldn't bank on taxes staying relatively static. That's like pretending the federal tax deduction (for years considered untouchable) is not on the list of items being considered as a revenue saver....or that pensions are always funded.
  • November 22 2011
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Profile picture for hpvanc
 The typical landlords does have some cost advantages over the typical buyer.

1.    Buy without emotional attachment, and walks away with out remorse if it won't pencil out.
2.    Successful landlords of one to a couple of handfuls of properties are handy and perform a significant portion of the maintenance and repairs themselves.
3.    Economies of scale on maintenance and repairs for landlords of multiple properties.
4.    Landlords on all scales tend to make choices based on a combination of cost and durability when performing maintenance and replacing components i.e. value.
5.    Large landlords are successful in gaining favorable property tax treatment in many jurisdictions.

If consumers can be as unemotional in buying, handy in performing maintenance and repairs, and as practical in their choices as landlords, they can do as well or better than renting, if they are holding it for a decade or more in the typical market since the landlord has to make a profit on top of it.  The problem is we are not in a typical market, and most people aren't as handy and practical as the typical landlord, and too many agents have trained, practiced and apprenticed at manipulating buyers into making emotional choices when buying. 

Caveot emptor "buyer beware" of the services of a commission paid buyers agent that you have not had the opportunity to observe through multiple transactions.  The sales pitch of the buyers agent should be treated with the same skepticism as the sales pitches of the seller and their agents.
  • November 22 2011
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It is important to talk with a professional in the area in which you intend to live to help determine if is better for YOU to rent or to own.  Aside from the financial aspects of home ownership, there many other reasons to consider.  If you plan to be in an area for a length of time, it helps build a sense of community.  There is pride in ownership that can translate into a pride in one's community.  For some, this can not be financially measured.   
  • November 22 2011
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Profile picture for Roseville Loan Guy

Just to continue on property taxes in California (for Tiffany and/or anyone else interested) Prop 13 is pretty much a sacred cow in California. It changed the state constitution and can only be changed by a 2/3 vote in a statewide election of all California voters (can't be changed by the state legislature). The idea that it is ever changed in for residential properties is just something that is not going to happen.

It's one of the greatest things about homeownership in California. There are definitely other things to consider when thinking about buying VS renting but rising property taxes isn't one that anyone needs to be concerned with in this state. Its actually a benefit that grows every year when compared to renting, especially over a long period of time, as rents will almost always rise considerably and a fixed rate mortgage (and the property tax bill) will not.
Greg

  • November 22 2011
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@ Greg
I get that it's not an easy vote to change, but it would just be one successful election to do so. My point is that taxes and insurance are not fixed, and may vary mildly or wildly. Even if your jurisdiction has measures in place that you think will never change, they may - and any homebuyer should be prepared for odd moves my government in taxation given the current economic climate. Cities, states, counties, and voters are doing wonky things right now.
  • November 22 2011
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I posted this question just before the holiday and missed the responses.   Tiffany, your points are quite well taken.  On the surface, Rent vs. own has been a long standing issue since access to ownership began.  I have never been one to subscribe to motivating a client just on that basis.    In this case, I should have added a bit more information that may have been helpful to you.  First and foremost I was actually speaking to our Sacramento area and did not clarify that for the post.  My error. 

Greg is absolutely correct, that Prop 13 has been the tax standard here in California for many years, and while there could be some eventual tweaking of the proposition, my considered opinion is that basic taxes on home ownership will be left alone in California.  I could see some changes down the line for Corporate entities and investment property .... but it's a long way off for the purpose of this discussion.   In California we can provide some reasonable predictability of a tax bill for a subject property.

For this discussion, I have had three particular closings in the last two months where the buyers were not as concerned about value or rates (both of which they have some minor control over a current range), but they were paying high rental amounts.   One family in particular was leasing a home at $1300.00 and was able to purchase an exact model match 10 doors down with a PITI under $900.00.    That made sense.  This was a family that was solely interested in controlling their housing costs over the next 10 years while the economy still settles out.  In my opinion a very smart move. 

We have areas in our city where payment can be substantially less than rent.    You could not buy a lot and build a house cheaper than it would be to buy a new home.    I cannot speak to Pennsylvania, but I can speak about Sacramento.  Great city and we have hammered hard over the last seven years.  It's nice to see people making good decisions.

  • December 04 2011
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Profile picture for Caveat Emptor
so, you are saying that rents in the area are 45% above the cost of a mortgage and your clients are expecting rents to rise? hell, your clients should have bought 3. they would clean up!

  • December 04 2011
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NTETS,  Actually, this particular one is an area where rents range from 1000-1300, depending on condition, but the home prices have dropped to the $100K or less range.   It is not in one of the higher end neighborhoods - but this buyer had grown up there and is quite comfortable with the area. In addition, it was a trust sale  under $85K.    This was a family and not investors but they sure made my list of the best deal of the year.    The other two properties had a savings rate of around $200 per month from rent to house payment. 
Thank you for stopping by.
  • December 04 2011
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The decision to buy or rent is not a simple one.  There are advantages with both lifestyles and disadvantages as well.  The biggest factors are how long a person is going to be in a given area and how long a specific home will meet their housing needs.  The basic analysis is the longer a person will stay in a home, the more sense buying makes.  If a person is likely to move away from the area or have to acquire new housing because of a change in housing needs, the more sense renting may make.

There are three factors to consider along with how long a specific home will meet a person's housing needs:
1) Costs:  The basic analysis is it costs less to rent then to buy in the short run – however that may not be as true today.  I have seen house payment much lower than market rents on transactions I have worked on which would lead one to believe that even in the short run it may be less expensive to buy.  However when the costs of maintenance and possible replacement of major systems are considered, it usually still pencils out to initially costs more to buy.  What's also true is that at some point, it will costs less to buy then to rent.  Rents will go up with just basic inflation and house payments will stay the same and eventually be done.  It doesn't take a genius to see that after 30 years of renting; a person will still owe rent – at a rate probably much higher than the original rent – and own nothing.  By contrast, the owner will be only paying for insurance, taxes, and maintenance.  Where that point is does vary, but there is always a point where buying is less expensive then renting.
2) Flexibility:  Renters do not have as much freedom to alter the property; however they have complete flexibility when it comes to moving to another property.  If a person's lifestyle includes having three large dogs, they will find it difficult to rent most properties.  The same thing goes for things like installing dark rooms, practice rooms for musicians, etc.  On the hand, unless you are under a lease, you can move out whenever you want.
3) Security:  Especially today, the nice thing about buying is that unless you stop making payments, you won't be forced to move.  I have had more than a few buyers lately buying just because they were tired of having their home foreclosed out from underneath them.

  • December 06 2011
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I have many first time buyers that have seen the benefits of Purchasing rather than renting.  The tax write offs, lower monthly payments, bigger home and pride of ownership have been big factors.  To offset problems with the home we like most Realtors have the home inspected.  Also Home warranties are a must and I recommend my clients to re-up from year to year, for if nothing more than piece of mind.
  • December 08 2011
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@Isom

As long as you are warning people that...
- The tax write-offs are a legislative grace that can be retired at the discretion of congress.
- Homeowners should not count on mere house payments alone. There are costs to maintain a home and taxes or insurance can and do change annually.
- Pride of ownership is an intangible - it is a reason to purchase as is a desire to regularly change wall colors or a hobbyo of moving walls (a personal problem of mine). There is no resale value and it may even decrease the value of your home if your version of pride (or remodeling) doesn't work well with market tastes.

In my humble opinion, home warranties can be silly if you regularly maintain your systems. I would much rather take the annual premium to apply to a professional furnace cleaning, a roof check and some caulk every year. Given limited resources, I'd rather know I'm not going experience the problem in the first place than have to worry about dealing with an insurance company. I'll take preventative measures over "peace of mind" any day.
  • December 08 2011
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