To Rent or To Own, that is the Question……
…..when looking for a new place to live in the Lansdale Area
More and more this is a topic of discussion on network news, in your workplace and just about anywhere the conversation turns to moving from one place to another.
The “buy or rent” debate can be argued one way or another, but ultimately it is a choice lending more to lifestyle than anything else. Okay, it’s also about whether you can afford to buy and own a home, but I think you’ll be surprised to learn how close the monthly costs actually are in our neck of the woods. I’ll use real examples of homes in and around Lansdale.
A home should not be solely viewed as an investment. It is the place you make your own, become more a part of the community and maybe raise a family. Can you invest in the stock market and get a greater return? Yes. Can you live in your stock portfolio? No. Returns on stock investments generally yield about 8 percent, where housing tends to follow the inflation rate with a typical gain of 3 or 4 percent.
So let’s say you are deciding whether to rent a 2 bedroom, 1½ bath apartment in Lansdale Borough in an apartment community. The rent on average is $950.00 plus utilities, sometimes more if you have a pet living with you. Here are the Pros and Cons:
- You don’t have to deal with repairs. That is the landlord’s responsibility.
- Ability to move at the end of the lease with ease.
- Useful in helping determine where you want to live if you plan to buy later.
- Up front money needed to move-in is less than down money needed for a home.
- You can’t change the paint colors or do anything permanent to make it your own living space.
- Storage and closet space is limited. You may be paying extra to rent a storage facility.
- You are not gaining any equity by paying the landlord’s mortgage.
- Rent money is not tax deductable.
- Rent can increase as expenses to landlord increase
- If you are in a large apartment complex, you hope that everyone is as careful as you are when it comes to security and fire safety.
Owning a home also has its pros and cons.
- It’s yours! You can do to it what you like
- Tax advantage: mortgage interest is deductable on your tax returns and when you sell, married couples can earn up to $500,000 tax-free on gains; single person gets up to $250,000.
- Builds equity as home appreciates.
- After 30 years, or less, if you’ve stayed there you no longer have payments (except for property taxes)
- You have maintenance expenses, typically $2000. to $3000. per year depending on size
- More difficult to move quickly.
- Property taxes can increase, changing you monthly payment
- Need more for down payment and closing costs to purchase than to rent
Now let’s take a real example of a townhome for sale in Upper Gwynedd listed at $199,900. It has 2 bedrooms, 1½ baths, a basement and is in good condition, with a small yard. Say you negotiate and purchase this home for $190,000. Using an FHA mortgage needing 3.5 percent down ($6,650.00 in down money) and an interest rate of 4.75 percent, your monthly payment would be:
$966.00 principal & interest payment
$221.89 real estate taxes
$137.51 MIP (mortgage insurance premium for putting less than 20% down)
$50.00 homeowner’s insurance
Total: $1,375.40 monthly payment
Here’s another example of a twin home in Lansdale Borough with a list price of $180,000. It has 3 bedrooms, 2 full baths, good condition, with basement and a garage. Again using the same kind of mortgage as above, your monthly payment would be:
$915.16 principal & interest
$221.51 real estate taxes
$50.00 homeowner’s insurance
Total: $1,316.94 monthly payment
Compare this to a similar home in the borough for rent for $1,375.00 plus utilities that may allow pets depending on kind, and non-smokers only. You’d actually pay less to own than to rent!
So if you are currently renting and considering buying a home take into account these things:
- Prices have fallen nearly 30 percent since the peak of the housing market in 2006-2007
- There is an 11 month supply of houses currently on the market, meaning supply is in the buyer’s favor
- Think about how long you will stay in the home. If more than 6 years, it is worth buying instead of renting
- The tax advantage.
- Select a neighborhood or community where home price trends tend to rise instead of decline.
If you are a first time home buyer and need more cash to purchase a home there are a couple of options.
You can sometimes get a “seller assist” where the seller actually gives you a credit toward costs so that you need less cash to close on a property.
Another option is to tap your IRA. The government allows IRA owners to withdraw up to $10,000 ($20,000 if married and each of you have an individual accounts) penalty-free, but not tax-free, to purchase your first home.
If you would like more information or comparisons on buying vs. renting, please contact Gina Wherry, 215-256-1200 ext. 322 or visit our website: www.scottloperteam.com.