Rent or Buy?

ddgrs2007
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The answer to this is based on what your short and/or long term goals are. The one thing that I always keep in the back of my mind is that buying a home will always have a major tax benefit.

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July 11 2007

DaveMiura
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Do you mean writing off the interest on the loan? Are there other benefits?

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July 11 2007

calvinandhobbesgirl
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I have owned various new construction homes since 1995. I am currently in a position where I want to downsize and have a contract on my 3/2/2.5 townhome with a closing set for July 31.

This is the first time in a looooong time that I have seriously considered renting. Not only because of the short time frame to find another home; but also because the Tampa Bay area housing market is so fraught with slow sales, oversaturation of available homes for sale AND the still unresolved property tax and skyrocketing homeowner's insurance issue. I'm thinking this may be a good time to put my net proceeds from the sale into a short term account, wait out the market/insurance/tax issue and rent for a year. Once the market either bottoms out and begins settling, my downpayment $$ will go a lot further (prices may still drop in this area.) Also, the insurance/tax issue may be resolved.

If you'd rather not rent and you are a first-time buyer, this is a great time to buy a home: the boom is bottoming out with prices settling back to normal levels, you have your pick of HUNDREDS of properties if you have the patience to look at many, and interest rates are still relatively low. Plus title companies have plenty of room on the schedule to do perform your closing....30+ days no longer applies!

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July 11 2007

ddgrs2007
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From a tax perspective, and I don't know your level of tax lingo, you have two options of deductions, standard or itemized. Standard deductions is a set number from the irs that allows you to subtract from you income to come up with a taxable income number. Once you own a home, more than likely you will have more than the standard deduction rate and the irs will allow you to pick the higher of the two. Some of the writes offs are (what you mentioned) interest, property taxes that you paid in the calendar year, if you donate money or charitable items, vehicle registration (the taxes that you paid on it), etc. You can take a look at form 1040 schedule A
There are other reasons why to buy, but like I said earlier, it depends on what you want to do. I work in the housing construction industry in so cal and the number of starts that we have, have dropped, and all the experts in my industry are predicting that the rest of this year will be slow, 2008 might pick up and by 2009, things should pick tremendously and values should increase. Only time will tell.

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July 11 2007

Robin Lynch, "robin398"
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Robin Lynch, "robin398"

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Renting might deserve another look right now. After five years in which rents have barely budged while house prices in New York, Washington, Los Angeles and elsewhere have doubled, renting has become a surprisingly smart option for many people who never would have considered it before.

Owning a home often ties up hundreds of thousands of dollars that might be invested more safely and more lucratively elsewhere over the next decade. And while real estate brokers may hate to acknowledge it, home ownership involves its own versions of throwing money away, like property taxes and the costs of borrowing.

Owning a home today is more expensive than renting in much of the Northeast, Florida and California. Only if prices rise well above their already lofty levels will home ownership turn out to be the good deal that it is widely assumed to be.

In the Bay Area of California, a typical family that buys a $1 million house - which is average in some towns - will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.

There are obviously benefits to home ownership beyond the financial, like peace of mind and a feeling of stability. Owners cannot have their home yanked away by a landlord who has decided to move back in. Owners can also change the color of their living room walls or fix a draft seeping through their windows without asking permission.

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July 12 2007

Richard Federico
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Richard Federico

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While renting may seem easier to some these days, it is probably the best time to buy a property. The market is down in some areas. All real estate is still local, so don't let outside influences determine what you do. The benefit is that every dollar you put into a property is going toward your equity. If you don't see any real appreciation in the short term, you've still paid down a portion of your mortgage balance, while enjoying tax benefits, improving your credit score, and when you sell, you will have the difference between your loan balance and the sale price as your return. What Kind Of Return Will Your Apartment Give You? How about the bank, maybe 4-5%? While you are owning your own place, you can tear it up, redecorate it and use and enjoy something of your own. Ths is not a good time to hold back, this is the best time to get in, not get out.
Why would anyone want to buy a home when there are 50 buyers lined up around the corner for 1 house when they can have their pick now, and get a better deal?
As for the Tampa area, I understand your concerns. I am in Orlando. The tax situation has been solved and you will reap some benefits this year and more next year. The Insurance issue is no longer an issue. Check around for the best deal when you are in need of insurance next time or when your policy is ready to expire. If you get in a good deal now and have a little patience, you will reap some great benefits.
The "Waiters" will be telling us later that they should have jumped on the good deal when the market was down. They will ultimately be renters for the long term.
It is amazing that the press continues to down play a strong economy. This market is comparable to many past markets, its just that we had such a crazy boom for a couple of years. Most of us in the business know that this is just a return to normalcy.
By the way, there is no throw away in home ownership since all taxes and closng fees are deductible and can ease the tax burden.

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July 12 2007

Robin Lynch, "robin398"
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Robin Lynch, "robin398"

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Hi Richard. I agree with your statement that this is the best time to buy a property. We are in a buyer's market. I have done 2 CMA's for FSBOs who did not want to come down in price. For sellers, you need to price your home accurately so it will sell. Buyers are looking for location, size and amenities, in that order. That is what determines the price of the home and most important, the buyer determines the price of the home.

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July 12 2007

Christy Wailes, "southwardbound"
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how has the tax situation been solved in FL?? we want a second home there, but for the cost of taxes we could nearly pay rent and if you add the insurance, we probably could save money renting.

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July 12 2007

Michelle Berry, "Michelle Berry"
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Michelle Berry, "Michelle Berry"

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Hi Dave,

Buy a place! If you are paying rent, you are only adding to your landlord's equity! I'm a realtor here in Portland, OR...and things are slowing down a bit for us, but we are still seeing annual appreciation, with some areas being in double digits. It's my understanding that Seattle has gone a bit softer, but not to the degree that CA has. Find a local, knowledgable agent to advise you of the market there. If you plan on being in your home for even a few years, you should see a nice return on your investment. Typically, I've been able to negotiate great deals for my buyers in the early fall, when sellers in our area are getting anxious to sell before winter. Good luck!

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July 12 2007

konisko
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in almost every major market of the country, it's cheaper to rent than to buy.

look at robin398's first comment. its right on the money.

i rent a place for $3,200 per month that would cost $6,000 per month after-tax to own. note that is after-tax. (to heck with the so-called tax benefit that no normal person can quantify - i quantify) by the way, its so-cal so its not a mansion.

my forecast is that home prices will drift downwards for up to 5 years. after inflation ... thats a big fall. don't buy until prices are rising for 6 months.

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July 12 2007

greg1231
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How do you define a major market?

Renting vs. buying is relative to local markets. Certainly popular areas in CA, Boston, NYC and major large cities in the US are more expensive areas to purchase homes. However, rents in these areas aren't cheap either!

You can't compare apples to oranges. A rent or house in downtown SF is going to be much pricier than downtown Atlanta. That is why many potential buyers look in the suburbs to purchase a home.

Much depends on your personal situation. If you have to live inside the city, prices are going to be higher for rents and houses than the outlying suburbs. Real estate prices are regional. You have to consider the emotional, physical, and financial demands of commuting. Nothing comes without a cost.

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July 13 2007

alanf
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Buying a home will tie you down to a single area. With a rental, if the local economy or job market is slagging, you can pack up and go where the jobs are.

There has been recent suggestion that the rate of home ownership may contribute to the rate of unemployment in an area.

Here's an example of one article that touches on this somewhat:
http://www.slate.com/id/2161834/

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July 13 2007

DaveMiura
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DaveMiura

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Thanks all!

I'm really asking this question for my friend who favors renting so he does not feel tied down. Does anybody have any comments about what the minimum % appreciation or time is needed before selling to break even?

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July 16 2007

socal doc
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I am currently renting a home. I was planning on buying newconstruction last summer. From the time i had placed a deposit to the time the home was to be complete the prices starting coming down. It made me nervous so I deceided to back out. And I am glad I did. the home I am currently living in is valued at aprox 1.1 mil. I rent it for 3000 a month. My mortgage would be double that if I had decided to purchase it.

Since I have moved into to the neighborhood I have seen a new foreclosure home come up for sale every 2-3 weeks. The 6 months I have been living in the neighborhood I have seen prices come down by aprox 200k and they continue to fall. Last week I attended an auction for home that was sitting on the market for aprox 1 year. The home was originally listed at 950k last October and ended up being autioned off at 700k.

In my opinion renting makes more sense than buying at least for the next 6 months to 1 year.

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July 17 2007

ReallyEstate
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At the current point in the housing industry right now it is truly a buyers market and according to the latest reports from economists we are at or close to the bottom. If you take a look at new construction you may be able to find some of the best deals. Builders are hurting. They are the ones that are causing major headlines with huge percent losses. But that means that they are desperate to unload their inventory. Once a new home is built they have to start paying on their construction loans and holding the house costs them money. At this point builders are looking for sales now so that they can get them on the books by the end of the year. So, if you truly have a choice of taking advantage of or at least exploring taking advantage of a builder's hard situation then it is time to buy.

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July 17 2007

Bill Black, "Lowrates"
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Bill Black, "Lowrates"

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This is mainly about personal choices... I am in the lending industry and of course see the benefits of buying but also identify the special circumstances for some that do not have ties to the area, live in expensive areas etc. I read an excellent article that gave me some insight on my views.

http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/

But I was also raised froma family that rented their whole life and at 67 have nothing to show for it but regrets and stories from other people their age talking about reverse mortgages and getting a paycheck out of the equity. I think they could have afforded a home but were afraid of the committment and discipline it would take in budgeting.

It is a fact that Americas #1 contibution to wealth is from Real Estate:)

By the way...ReallyEstate is right on par! I just financed a home for a client and the asking price was $510,000 and we purchased it for $450,000 with the seller paying 9 months in mortgage payments!

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July 17 2007

Michelle Berry, "Michelle Berry"
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Michelle Berry, "Michelle Berry"

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Here's an interesting article about appreciation in the top 50 cities, I thought of this discussion whilst I read it... It really shows how localized real estate is. Market conditions should always be taken into consideration when buying or selling. One thing that I'm not sure has been mentioned is that if your friend feels the need to pick up and move, for a job, let's say, he could always rent his place out, and if the move didn't work out then he's got some place to come back to.

http://realestate.msn.com/Buying/Article2.aspx?cp-documentid=5124742

I have a bit of a feel good story. The girl that cuts my hair is single, in her mid 20's, and never went to college, opting for beauty school. She is very talented, has a great book of steady, loyal clients, and was making big bucks. I was sitting in her chair one day, and we started talking about owning a home. She spoke with a mortgage broker, and we ended up finding a very nice 3 bedroom townhome for her, in a fairly desireable area.

She has owned it two years now, and has gained enough appreciation that she is seriously considering pulling out the equity to start her own salon. The first year, her sister rented a room, to help with the mortgage, and the HOA helps with exterior maintenance.

It's so fun to visit with her and hear her plans, none of which she would not have even been able to consider if she had not decided to own a home. She may not be "college educated" but she sure is making some smart decisions!

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July 18 2007

Bill Black, "Lowrates"
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Bill Black, "Lowrates"

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Thanks for the link... I have been looking for that!

It looks like the Northwest is staying strong! 11%-12% appreciation in the first quarter of 07' IS AWESOME!

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July 18 2007

dmarshal1
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Renting is like throwing money out the window. Rents may be a little lower now in some places but when you purchase a home with a fixed rate mortgage only taxes and insurance go up. And, as you make your monthly payments you are building a nest egg for yourself, not someone else. I am a firm believer in home ownership for adults with stability. Even if you have very little cash there are options for you like co-ownership. There are probably some sellers right now that would consider some creative financing to help get there home sold. I know I would!

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July 19 2007

Kimbrough Gray, "kigray"
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Ok I going to admit write off I am wierd. I am really into saving. With that said everyone has the rent vs buy argument. I think the more important distiction is the buy a large place vs small place. Once you factor in tax benefits and what not the rent vs buy question is not as important as large vs small.

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July 20 2007

i_laham
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I would not touch real estate till 2012. Real estate bear market just started. A house today is not an equity. it is a liability because it is totally disconnected from the economical fundamentals. Interest rates are going a lot higher and this gonna drag down real estate at least 50% from its 2005 highs. It is all about timing and the downturn just starting. Don't catch a falling knife. for those who say "Renting is like throwing money out the window" is total BS. resident Real estate is the worst investment you would ever do. Real estate hardly appreciates the inflation rate. The stock market across history always outperformed Real estate in 10 folds.

Don't ever think of your house as an investment. House is a liability. It is something that costs you money. A House is only a place to live. that's all.

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July 21 2007

ZAS
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Tell your friend to run his numbers. Here in the San Francisco Bay area I compared renting for 40 years to a 30 year mortgage on the same size place and including maximum rent increases (in contract) and it was still a cheaper to rent. Once I figured in the cost of maintenance and the tax advantage, renting was still better. Then I took into account the interest on the extra money.... The only good news was when I finally die my kids would be able to sell the house or live in it. In our case a $700K house (here a 1000 sq feet on 5000 ft lot) would have to appraise for $3 million in 30-40 years for us to get all the money back out of it.

Needless to say...we are buying else where :)

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July 21 2007

Aldreth
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RENT - don't be a poor schmuck who gets brought into the market while its crashing.

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July 24 2007

Tim Ellis, "The Tim"
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Dave,

Anyone that picks either buying or renting as the best choice without knowing the full details of your friend's situation is doing a disservice. You're on the right track with your questions about appreciation and time needed before selling.

When you restrict the conversation strictly to the financial aspects of renting vs. purchasing, there are many factors that you need to consider. It comes down to a lot more than monthly rent vs. [monthly mortgage - tax savings]. I wrote an article on this very subject recently, which you may find here:

http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/

The article focuses on Seattle for its example, but the main point is that you should not accept the standard clich�s about renting vs. buying. Consider insurance, maintenance, likely appreciation, and what you would earn by investing the money you save every month renting.

The New York Times came out with an excellent graphical calculator that takes most of these factors into account: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

In most major markets across the USA (especially on the coasts), renting is likely to be the best investment for your money right now, while in the Midwest and smaller towns the numbers might still work out in favor of buying. The bottom line is to take all the factors into account, both financial and "intangible," and do what works for you.

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July 24 2007

dennis homsey, "Dennis Homsey"
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dennis homsey, "Dennis Homsey"

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I wouldn't buy in Florida now. You can rent an 800,000 for $2500. No taxes, insurance, and pack up when the hurricanes come. Nice to have a million dollar view (ocean or river). $2,500 a month. Air conditioning breaks, need to board up...not my problem.
Looking to buy... check out e-bay real-estate "ending soonest" houses are selling for $3,000. time shares for a $1

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July 25 2007

klarek the realist
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This is a classic thread.

"While renting may seem easier to some these days, it is probably the best time to buy a property."

"I agree with your statement that this is the best time to buy a property."

"Buy a place! If you are paying rent, you are only adding to your landlord's equity!"

"At the current point in the housing industry right now it is truly a buyers market and according to the latest reports from economists we are at or close to the bottom."

What an established group of intelligent professionals. LOL

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February 25 2008

Aldreth
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lol

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February 25 2008

Bette Defarm
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Ah, the very first thread I read here at Zillow....definitely a classic and worth revisiting :*)

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February 25 2008

klarek the realist
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Yes, the old days of zillow forums, where cheerleaders could spew their garbage free of worry that there could be a dissenting opinion (truth) to shake them up. Unfortunately, they're gone now.

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February 25 2008

Roberto Ribas, "azrob"
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hows that 11 and 12 percent appreciation thing working out? hello? you guys still here??

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February 25 2008

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