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Rent vs Purchase

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Pamela Crowley (Florida)

Thread Starter
Elite Member
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
It has finally occured to me that way too many homeowners could not rent their house for as much as their mortgage payments and some are way, way over what it could rent for.

The implications of this is not good at all. I remember my first real estate classes in eary 1972 and many since going on and on about how buying a home was so much better than renting because you could ALWAYS rent it for more than your mortgage payments. Not so anymore and anyone else want to venture into the reasons and repercussions? (where is that spell checker?)
 

TZitter

Sophomore Member
Joined
Mar 11, 2002
Pamela,

But when you rent you cannot roll over your car, credit card, furniture, second credit card, third credi card balance into you home mortgage.

It would seem that at some point the cards will fall. Try not to be at or near the bottom.

Tim Zitter
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
You can always rent your home for the mortgage payment. The problem is the taxes and insurance which can add as much as $250 to the average home payment. Tax rates at almost $3.00 per hundred and insurance rates through the roof due to mold costs continue to jack up costs. However, when you look at the 5-10% appreciation per year in most areas, the payment is offset by appreciation at the time of disposition.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Pam,
I remember reading those books from the 70's and early 80's. :lol:
Those were the days when most people didn't do annual refi's, knew little about investing in anything other than real estate, credit cards were the exception rather than the rule, and paying off the mortgage was every homeowner's dream. Things have certainly changed since then. 8O

Whereas most people from the age of 40 and older were raised to believe that home ownership was as good as money in the bank, the younger crowd was raised to believe that it is an open checkbook that automatically refills itself. That's lots of fun when the economy and housing market is steaming along as it has been for the past decade (nicer cars, bigger houses), but when it slows down or stops the checkbook slams shut, the bank is broke and they're financially stranded. Few of those under the age of 40 have given enough thought to retirement or savings (that's for old people, right?), and a good percentage of those who did so jumped into aggressive stocks that have recently taken a plunge.
Take a look at the areas where, over the past 5 years, the under 40's have been flocking to and the retirees have been cashing out of. I'm wondering if there isn't a trend that suggests that these are the areas that are getting hit the hardest right now. The homeowners can't sell their homes for what they paid for them just a year or two ago, and they can't rent them out for enough to cover the mortgage payments. Areas where the older set are retiring to (the savers), appear to be faring much better.
Is anyone else seeing the same thing, or is it just me?
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Dee Dee:
You may have hit on the reason why MY market is so stable.... Most bright young people get out of town and never look back, hence the local market has stayed rediculously low. retiree city and the young haul butt to brighter lights elsewhere.

It has 'been rising just slightly ahead of the overall rate of inflation' for years, and is currently one of the better bargins around for low cost hosueing... of course the TAX rates on this area are skyrocketing as we have little or no economy to raise funds from other than the local homeowner... :evil: Don't ask what is happening in our schools as a result. 8O Yesterdays paper says they are cutting personell at elementary level _SNARL_.

Have to agree that funding through refi has about hit the end and that the crash is going to come soon(?) "Houseing bubble" references are getting out there - I have seen three articles this week...

But then again with the only major tax break for many people (Dinks and Yuppies) coming from that good ol mortgage deduction whadda ya expect? :roll:
 

Tony O\'Regan

Freshman Member
Joined
Feb 28, 2002
The principal and interest payment on a house may be higher than what you might rent the same property for, and that payment only skyrockets with taxes and insurance, however, consider the affect of tax savings and appreciation on that monthly mortgage payment, and I suspect renting is more expensive :wink:
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
As others have stated, the homeowner gains equity from principle reduction and appreciation, not to mention the interest deduction. If you plan on staying in one location for at least five years and can afford the monthly costs of homeownership for the future benefits, it's still better to own than to rent because most people are not disciplined enough to invest the difference.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Pam,
Remember when it was not uncommon to see "Rent with option to buy", and "owner will carry"?
I wonder if that trend might start coming back.
I've also noticed a jump in the popularity of "For Sale by Owner" and the low fee "Help-U-Sell" type real estate sales. Perhaps because there isn't room to pay the realtors a full commission?
 

xmrdfghap

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Florida
<span style='color:brown'>Dee Dee, the FSBO's that seem to be proliferating are, to me, a result in the lack of real service provided by most real estate agents. After all, what do you get for you 6%-8% commission? A listing on the MLS, a sign in the yard and maybe one or two on nearby corners, a listing on the internet, newspaper classified ads, and the occasional open house. The ONLY thing the agent can exclusively offer is the MLS, and people scanning the internet can find you just as easily.

I can see the time coming when there will be few sellers brokers. The buyers will hire a broker to conduct property searches, negotiate, and assist in arranging financing (maybe). I bet sometime in the not too distant future a home owner will be able, for a fee, to list a home on the MLS without a contract with an agent. If that doesn't happen through the MLS, it won't be long until an enterprising broker will do a "sellers listing" for $200-$500 with advice and additional services available for a fee. There will be no commissions offered....such commissions will be negotiated between the buyers agent and the buyer.

And this is where I foresee the bulk of future residential appraisals originating.....listing valuations. The guy thinks his home is worth$100,000. For a fee, do an appraisal, verify a good listing price....more a band of value as in "This home will sell between $95,000 and $105,000. Depending on the motivation of the seller, it will take between an estimated 45 and 120 days exposure to the market."

The home owner can place a newspaper ad on line for $30.00+ per week (to be run in sundays edition for 6 weeks), can order a couple of nice signs from his local sign shop (complete with graphics) for about $50.00, and can hire a listing broker to answer the phone, prescreen the callers, and show the home for $1,000. Compare that to the $7,000 (7% commissions) realtors are asking in my local market. Add a few specialtiy services (open house hosting complete with banners, signs, handouts and hors d'overs, fax braoadcasting, etc...say an additional $500), the guys pends less than 2%-3% for marketing expenses.

But having been active in Real Estate for 20 years, I see the reduction in the use of the sellers agent in the very near future. There will be some activity in the relocation business, and there will be some activity in the fee agent, but commissions? I just don't see it lasting for many more years.

And a buyers agent SHOULD be fee based rather than a commission based person. If I were getting paid on commission, and I was looking at a home with a band of value of $95,000 to $105,000, I would either be cutting my throat getting it for him for 95, or I would be failing in my job if I get it for him at 105.....I would rather see a flat fee.....Looking for a home in the $100,000 range? My fee is $800 to $2500 depending on the degree of difficulty for the house. (If a guy wants a geodesic dome in a high end neighborhood, we may have to get it built for him.....). I discover his needs, I locate several homes that match his requirements, I preview them, I show them, I negotiate, and I assist with finding financing and with the paperwork.....and I need FSBO listings as well as MLS listings.</span>
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Do-em-yourself FSBO's are alive an well in this town, primarily on the low end and mid upper high end (yuppies caught on first) the low end stuff the agents decided wasn't worth thier time.

We have one current pick-your-level-of-service group in town which results in MLS exposure, a Help-U-Sell franchisee. He and now his brother and a secretary and a few other folks are starting to do good business and create name recognition here.

The wave of the future I think!

Will be interesting when a few other 'top agents' decide to cut in on his turf.
 
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