I've been absolutely dumbfounded this year. I have done so many leases it's not even funny. Of course, I often ask my clients why they are leasing instead of buying. Most of the time, they have very valid reasons. I've listed a few of them below.
1. "I can't afford a house payment." (not an excuse, but simply cannot pay one)
2. "I just moved here, I want to see what parts of town I like the most before I buy."
3. "My debt-to-income ratio is out-of-line."
4. "I have very poor credit."
5. "I won't be living here long."
Of course, exterior circumstances such as age / roommates / divorces, etc. keep me from having to ask the question. However, once-in-a-blue-moon, I receive the following response.
"It's a waste of money."
What? In a much nicer way, I usually ask:
"So you would rather rent property for the same amount as a house-payment and have nothing to show for it at the end?"
Their response?
"Well, the way property is devaluing, it won't be worth anything when I pay it off."
Okay. This blog has the potential to get very long, so we're going to have to operate on some assumptions before we continue. Once again, there are MANY exterior and financial cicumstances which make renting a good idea. Many of them are listed above. Owning a home can sometimes include additonal expenses such as HOA fees, etc. However, for someone who is financially capable and doesn't forsee moving anytime soon, etc., etc., etc., why would you not want to make a living expense an investment? At this time, we also have to put aside any bias against Real Estate agents.
<TANGENT> Many will argue that we just use facts like low interest rates as a way to pad our wallet. I have news for you. Most of us are honest, hard-working people - just like anyone else. Not only that, but according to the National Association of Reators database, the average Realtor made 48K last year (2010). Furthermore, do you know how many hours a year I spend researching properties, making phone calls, sending emails, making appointments, driving all-across a huge metro area, drafting contracts, showing homes and cancelling on family-events because clients need something? And after all that work, the client (buyer) changes their mind or knivingly decides to cut their Realtor out of a deal because a builder (or someone else) promises to give the client a mousepad and a koozie for saving them from the "trouble" of paying a commission (despite legally binding agreements they signed). I'm not complaning - it's just the nature of the beast. Just know, it's not the stereotype you think it might be. <END TANGENT>
I said all of the above to say this: Your Realtor is interested in your personal success and realization of dreams.
Now, let's examine the whole, Rent vs. Buy scenario.
Common Sense Item #1: In addition to handling your living expenses each month, you'll have EQUITY and something in the end! It's simple. Don't let someone complicate such a simple concept with property values, etc. Ginnie Mae (Government National Mortgage Association) published a very easy-to-understand snapshot of the financial benefits of buying a home. You can see the snapshot here.
Common Sense Item #2: Rent payments go up on average of 5% every year! Fixed interest rates do not! This means that after about 6 years, the renter is paying more than the homeowner on living expenses. I'm baffled by financially capable people who rent the same place for several years - paying more each year instead of simply buying a nice home.
Common Sense Item #3: Not including legitimate write-offs for business, are you able to deduct any of your living expenses on your taxes as a renter? Before you open your Google tab, let me just help you out. The answer is no. As a homeowner, you can deduct the interest and certain improvements on your home on your taxes - as well as any legitimate business deductions for office square footage, etc.
Common Sense Item #4: Average property does not devalue. Any improvements you make on the land will also add value to your property. Besides, by the time you pay-off your investment (15-30 years later), economic climate and local land usage will have changed dramatically - most likely for the better. Example: Someone I know very well is a millionaire today simply because they were able to sell their paid-off land to the state when they wanted to build toll-roads. You just never know!
Common Sense Item #5: Generational investment. As a renter do you have anything to leave your kids? Grandkids? Legacy is an underpracticed and all-too-essential concept.
I'm not in Real Estate to make money, but to make a living. My profession aside, I hate to see people waste money. And don't even get me started about leasing a car...
Photo Credit: http://www.photobucket.com
James Johnson, Realtor
Austin Texas Homes, LLC
www.austintexashomes.com
www.facebook.com/jamesyjohnson
jamesjohnsonhomes@gmail.com
512-587-6064
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