Homeowner or Renter ? Modern times question of upward mobile yuppies. My oldest daughter has done really well for herself. She pushed through and graduated Nursing school and is an RN in the Dallas area. She is currently a renter and of course me being Dad I am encouraging her to buy, I’m reluctant to push to hard on this subject or any subject because Dad here encouraged her to make her own decisions. Occasional this Dad needs to bring himself back to reality and remember to stay out and allow her to make her own decisions and yes her own mistakes. A comment I am reminded I said often while my two daughters were in their teen age years. Not that I encouraged mistakes but experience is the best teacher and growth comes with mistakes and wins. Fortunately, we have been blessed and my daughter has far more wins. Here is her dilemma, she has positioned herself financially to easily qualify and become a homeowner. The area she lives in suddenly lacks inventory of homes for sale. A tornado that blew through the area 6 months ago has left its mark and the cost of rent and home purchase prices have skyrocketed due to supply and demand. Rent for a small one bedroom has inflated to the point it exceeds what a house payment would be on a 3 bedroom home due to historic interest rates at a 40 year low. On the other hand buying a house in this immediate location may mean overpaying for a temporary upswing in home prices. Having lived there myself I was on the other side (the down turn) when I was transferred and we were selling our home. Stepping away from being personally involved I must admit my daughter has genuine concerns about buying a home and knowing she could be moving in 2 years or less. What is the answer here? No easy answer and no guarantees but involving a Realtor that knows the market is key, also weighing out the pros and cons. I have often used the Ben Franklin approach to decisions over the years. Simply listing the pro’s and cons to both sides of a situation and choosing the one that has the most pros but funny thing with Real Estate is sometimes you are listing cons on the future and you just don’t know!
How much do you pay for rent? When cities and rural communities gather together on planning commissions I used to ask what are they planning? I started going to local political events to learn for myself and see upfront and before you knew it I was asking our city leaders questions. When you live in a community that is growing other than the obvious city services such as water and trash and sewage, street planning and zoning, there are many other things to consider. Another big responsibility is safe and affordable housing for residents of the community. Poor planning in this area can result in high rent apartment living and even homes too expensive to buy thwarting expected growth. Bringing me back to the question Renter or Homeowner and my immediate reply is, ” whether you rent or buy, you pay for the place you live”. Renting for sure will never see a return on your money but homeowner will immediately give you a pay raise. How is that do you ask? The tax code allows a homeowner to deduct interest paid on the mortgage, property taxes and some costs involved of purchasing a home. A renter will never see these deductions and it is unlikely at this point homeowner tax deductible interest will go away. America still have the most homeowners than other countries and homeowners pay taxes and they VOTE!
Since 1972 through 2014 according to the National Association of Realtors home purchase prices have increased 5.2 percent per year. This is a statistical fact, but for those millions of homeowners in 2008 when the Real Estate and Mortgage industry suffered a complete meltdown I feel confident many of those people are far more cautious. When a market is on a rapidly upward swing in rent and home prices I tend to want more information as to why. When rent and home prices escalate so rapid that income cannot keep up with the prices this concerns me. First if income cannot keep up those people will move out of the area and when they do prices will stabilize. Buying a home during this time scores my daughter one for renter over buyer because you don’t want to get stuck with a home you overpaid for, HOWEVER: This is why we have appraisals prior to buying. Since the meltdown in 2008 the mortgage industry is highly regulated and appraisers and lenders are held accountable in a huge way for falsifying or misleading information. The bigger picture is plan on the long term, buying a house is for a home not usually speculation of dollars gained in a few months. Keeping this in mind and the fact since 1972 home prices have increased 5.2 percent per year, buying a home is a long term investment. Real estate provides stability and even with the 2008 meltdown and the rough last 10 years overall values have appreciated 7.0 percent. The number of households is expected to grow 10 to 15 percent due to millenials over the 10 years. City and community planners will need to consider this demand and plan for housing accordingly.
I bought my first home when I was barely 19 in North Richland Hills Texas. I purchased it from my Aunt’s estate when she passed away. When I first ask the family if I could purchase the home my Uncle Jack quickly praised me with these words. “Buying a home is a curve against inflation”! Admittedly I didn’t quite understand it then but looking back the proof is there. I purchased the home for $45,900 in 1984. The interest rates were at 12% and now interest rates are at 40 year historical lows often below 4%. My payments were around $600 monthly. When I closed on the home I went from having rent of $750-$800 for a small 2 bedroom apartment to a 3 bedroom, a back yard with a fence, a driveway of my own and best yet room to have family visit. In the beginning of a new mortgage most of the payment goes to interest but you get to write this off of your taxes giving you a raise, as you pay for a few years you will gain the appreciation. Going back to my analogy a paragraph ago, an investment. When you sell the property you are allowed to take up to $250,000 for an individual and $500,000 for a married couple as a gain without paying taxes on it.
If you have been a renter like most of us have at one time or another, then you have probably been given notice of intent to increase rent. Works kind of like this, you sign a lease agreement and get move in special, maybe a free month or a washer and dryer, you feel real good about it because you have shopped and are comfortable the rent you agree to is competitive. Two months before your lease is up you get a notice advising you the lease is up and you need to come into the office and sign another one. When you go in you are advised the rent will be increasing substantially. In all fairness you knew this would happen but your choices are to shop for another place or sign a new lease at the higher rent. Most choose to sign the lease again because they are all settled in who wants to move their personal belongings again. When your a homeowner you know exactly how much our monthly financial obligation will be and as your income increases your monthly rent remains the same. Your property taxes and insurance will likely increase but not at the same pace as paying rent and historically your home will appreciate in value.
Roughly 6 years ago I was between transfers. My family all knew my transfer was forthcoming and so we had to rent an apartment because my transfer would take me to another state. When we signed the lease agreement they made clear of the items we would be responsible for if we left them. One of them I recall is for every hole in the wall it would cost about $10.00 taken out of my deposit. These were holes from the nails from hanging decorations. We were moving from a house to an apartment for the first time in over 20 years we had so many little things. When I moved out of the apartment I spent a day just patching nail holes. When you own a home it is yours to hang whatever pictures or decorations you wish and you can even have painted accent walls. In an apartment you will be held to painting walls back to the bland color they were when you moved in. A growing family means kids growing up next to a life long friend. The stability a home offers really has no price tag. The American Dream of Home ownership is easily a reality. The Larry Stepp Team at Gustan Cho Associates is well prepared to guide you through the maze. We can provide information and assistance for FHA, VA, USDA or Conventional Mortgage Loans. We can provide information for adjustable rate mortgages, variable rate mortgages, fixed rate 30 or 15 or 20 mortgage plans. We follow FHA and VA Minimum guidelines and do not have any overlays. The Larry Stepp Team is available 7 days a week, Holidays and Weekends.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com