Is it a Good Idea to Rent Rather than Sell Your Home?

With more homeowners considering that now may be a good time to sell their home, we thought it would be a good idea to consider whether renting might be a better idea.

According to Fannie Mae’s June 2015 National Housing Survey, 52% of respondents said that now is a good time to sell. Perhaps more interestingly, 59% of respondents expect home rental prices to increase. 

Naturally, when you are considering selling your home, and you notice rental prices elevating, you are likely to consider renting. And who wouldn’t? Residual income on an owned asset, or having your house work to pay for itself sounds pretty good, right? This is when it makes sense to ask the question:

Are You Ready to be a Landlord?

Before you jump head-first into the world of being a landlord, take a look at this list. Sometimes what seems to be an obvious benefit can come with some hidden challenges.

10 Questions to ask before renting your home

1. If your tenant says they can’t afford to pay the rent this month because of more pressing obligations, how will you respond? (This happens most often during holiday season and back-to-school time when families with children have extra expenses).
2. Because of the economy, many homeowners cannot make their mortgage payment. What percentage of tenants do you think cannot afford to pay their rent?
3. Have you interviewed experienced eviction attorneys in case a challenge requiring one does arise?
4. Liability is greater in a non-owner occupied home. Have you talked to your insurance company about a possible increase in premiums?
5. Will you allow pets? Cats? Dogs? How big a dog?
6. How will you actually collect the rent? Electronically? By mail? In person?
7. Repairs are part of being a landlord. Who will take tenant calls when necessary and/or emergency repairs come up?
8. Do you have a list of licensed tradesmen readily available to handle these repairs?
9. How often will you do a physical inspection of the property?
10. Will you alert your current neighbors that you are renting the house?

The Takeaway

If you are prepared to handle the responsibilities that come with being a landlord, renting your home could be a great investment. Historically, renting residential real estate has been just that. However, if you are planning to sell before too long, the responsibilities that can come with renting your home may make any short-term economic benefit not worth the hassle.

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Seeking the American Dream of Home Ownership

Are you living the American Dream?

Most of us have a pretty good idea about what the American Dream is. In case you don’t, we looked it up:

“The American Dream is a national ethos of the United States, a set of ideals in which freedom includes the opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work in a society with few barriers.” – source: Wikipedia.com

If we carry this definition further, we find that many Americans see homeownership as an important part of that dream. Let’s look at some recent statistics.

Existing home sales in May of this year were 9.2% higher than the same time last year. Home sales in the Midwest and Northeast saw gains of at least 10%.

If the growth of home sales alone isn’t enough to convince you that owning a home is “living the American Dream,” there’s more. Studies have shown that purchasing a home is making an investment that will appreciate over time. What does that mean? Let’s look at an example. If you already own your home, you are enjoying an average of 7.9% gain in the value of your home just in the last year!

In addition to the financial benefit, owning your home is a slice of freedom. No paying rent to a landlord. No sharing an apartment complex floor with 30 other people. It’s yours.

As the housing market continues to show signs of strength, now could be the best time to invest in your piece of the American Dream. Whether you are looking for a home that is worth $100K or $1M, at Benchmark, we are here to welcome you into the rising trend of homeownership. You will receive more than just another set of keys…you will be given the keys to your HOME.

Fact Sources: NAR’s Existing Home Sales Report 6/22/15

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Renting vs Buying a Home and Accumulating Wealth

Does it make more financial sense to buy or to rent? Is the American dream of home ownership still alive? That depends. Let’s explore renting vs buying a home and the effects on family wealth.

Recently, the BH&J Buy vs. Rent Index seems to conclude that renting is surpassing buying as the better choice. Is it really? Should we let others draw our own conclusions for us? A closer inspection breaks it down. The summary says,

The index conducts a “horse race” comparison between an individual that is buying a home and an individual that rents a similar quality home and reinvests all monies otherwise invested in homeownership.

Let’s assume for a moment that this is true. Any funds that would have been spent on homeownership really is diligently invested by renters rather than spent. Is this a realistic expectation?

We should first consider the general economic advice of not spending more than 25-30% of one’s income on rent. We should also recognize that recommendations are often more conservative than what the population is actually doing. When we put these ideas together, the quoted text above begins to look more like wishful thinking.

Please consider: Housing’s 30-Percent-of-Income Rule Is Nearly Useless from Bloomberg.

When we look at consumer savings rates, this “wishful thinking” hypothesis is all but confirmed.

United States Personal Savings Rate

 

source: tradingeconomics.com

It stands to reason that the savings potential of the “if-then” scenario posed by the BH&J Buy vs. Rent Index summary is simply unrealistic. If the average consumer is spending at least 30% of their income on housing, and saving less than 6%, this becomes an unfair comparison. Why?

Forced Savings and the Accumulation of Wealth

An article in the New York Times published November 29, 2014 makes the case for home-ownership against renting. It is a well thought-out article that, if you are weighing the issue of wether to rent or buy, you may want to read.

As the rate of homeownership has declined, from a peak of nearly 70 percent in 2004 to a 20-year low of 64.3 percent recently, the number of owner-occupied homes has barely budged, while the number occupied by renters has increased by nearly 25 percent.

Those trends have led to questions about the future of homeownership. Would more and longer rentals be a bad thing? Are the benefits of homeownership overrated? More…

The article goes on to say,

Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.

What Does This Mean for You?

If you are taking an honest look at whether it is a better idea to rent or to buy, it is a good idea to consider the facts. There are good reasons for either renting or buying. Whatever decision you make, we at Benchmark are happy to look at your personal situation to help you make the right choice.

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