Why It Almost Never Makes Sense To Rent
A great number of buyers have been lulled into a false sense of security about renting. These buyers are looking only at the short term, immediate benefits of renting while ignoring the long term draw backs to renting. Key considerations that every buyer should look at are as follows:
- Rental rates are sky rocketing—A lot more people will be in the rental market beginning in the near future. Rental rates have already began to increase. Every buyer should anticipate a continuous increase in rental rates. They may think their saving today by renting because it’s cheaper than PITI but they must remember principal and interest payments are fixed, while rental rates will go up every year.
- Tax Benefits—Don’t forget to factor in tax savings from the mortgage interest write off.
- Home Equity—Most importantly, monthly payments on a mortgage will lead to a property that’s paid in full one day. If a buyer were to track rental rates as they increase, take the excess rent payment and apply it to the mortgage, their mortgage could be paid off in 15 years. Which makes more sense in fifteen years? No house payment and mortgage paid off or double the rent they pay this year for the rest of their lives and no assets?
Seller Argument #9 Bank Policies Close
Sellers that are holding out should pay careful attention to the impact bank policies are having on pricing. Banking policies have been designed to address the problem with eight million distressed home owners. Major banks like Chase, are now offering delinquent home owners tens of thousands of dollars to short sale their home. All of these short sales will likely have an adverse impact on pricing for some time to come.
On the buying side, the news could be even worse. Fannie Mae and Freddie Mac are tightening lending requirements. Look for fewer buyers to qualify for similar priced homes in the future. The future for sellers is more homes to compete with and fewer buyers in the market. How’s that working for them?
Buyer Argument #9 Psychology of Investing
Every buyer and should be given a copy of the attached chart. If every buyer were to use it as a guide, risk of purchasing could be minimized. Per the attached chart, the worst time to purchase (but the best time to sell) is when buyers are euphoric about market opportunities. That happened in 2005 and 2006 just before the market tanked.
According to the chart, the best time to buy is when sellers are despondent and depressed. That time is now! Once sellers are hopeful, the best opportunities have already been missed.