By CYNTHIA ANDERSON, Correspondent
JoAnn Carnes’ clients wanted a home, but they didn’t want a hassle.
After owning for years, they decided to rent when they sold their house in 2012. They recently signed a three-year lease on a two-bedroom, two-bath detached villa in Waterford, a gated community in Venice.
For decades, conventional wisdom has held that people should opt to buy rather than to rent. Renting, it was suggested, was like throwing money away. But when the economy foundered and properties lost equity, it made more sense to rent than to buy in many markets.
So what is the equation now?
The big picture is that mortgage interest rates remain low, and prices are at 2003 levels. It would seem the perfect climate in which to buy — and many say it is.
“When you do the numbers, it’s better to buy than to rent,” said Marc Rasmussen, broker-owner of DWELL Real Estate. “If you want to be a homeowner, now is the time.”
But not everyone agrees.
“I get 50 calls a day from people looking to rent,” said Carnes, who is property manager at Home and Condo Rentals and Property Management.
“There are financial reasons, of course, but sometimes people just don’t want to deal with upkeep and the other responsibilities of ownership.” Such was the case with the Venice couple.
That remains true, Carnes said, even as rental costs have risen — dramatically so in the past 18 months. Demand is up and supply is down as people who had been renting out their properties have placed them on the strengthening market.
Rental homes “come in and they go right back out,” said Carnes of the properties her company manages.
According to Brett Horowitz, a financial planner with Evensky & Katz in Coral Gables, the flexibility of renting is a key attraction. With a rental property, you can buy yourself time if you’re not sure you’re going to stay in an area or if you think you might want to trade up to a larger place.
Renting is popular, too, among people who are new to the area and unsure of what they want, said Carnes. “They can try out a condo, to see if they like that lifestyle, or they can try out a particular location.”
Convenience matters, too: “People like to be able to call us and say, the dishwasher isn’t working and know we’ll take care of it,” she said.
Beyond repairs, there is the consideration of recurring expenses. There are property taxes, homeowner’s association dues and condo fees. Factor in utility bills and property taxes, and the financial burden can be significant. Moreover, early in the mortgage, the interest pay-down is not unlike rent in the sense that the buyer is not gaining much equity.
A renter from the online forum bargaineering.com offered this perspective: “What we own ends up owning us. . . . I have learned the hard way . . . (my home is) worth $100,000 less than I bought it for . . . and I am tired of the struggle to make the payments.”
Added another poster on the same site: “I find there are far more expenses associated with owning, over renting. I can’t fix things worth a darn, and don’t have the money to keep hiring people.”
Indeed, the flip side of “putting down roots” is that those roots can grow deep and tortuous — financially, psychologically and logistically.
Still, ownership has its own considerable attributes, the most important of which is building equity, which in turn offers its own rewards — for example, the ability to leverage it to borrow to pay for college or to start a business. Having a mortgage also can provide significant tax deductions.
Then there’s the intangible benefit of owning your own home. According to Walter Molony, spokesman for the National Association of Realtors, “Achieving sustainable home ownership truly is the greatest part of the American Dream.”
If you’re considering buying, important considerations include:
Your financial status
Even though the lending environment has loosened, mortgages still can be difficult to obtain. Lenders typically want less than a third of your income to go to housing costs, and payments on your debt to be less than a third as well. Be sure to add up all the fixed expenses relating to owning the home, including mortgage, property taxes, closing costs, fees and insurance, in determining whether you can afford it.
Your credit
“Know what your credit is before you go through the process,” Horowitz said.
“Make sure there’s nothing bad there, and if there is, address it.”
Also, try to have as many credit sources as possible — automobile, bills, credit cards, student loans — to demonstrate your ability to repay debt.
If your credit won’t hold up to a bank’s scrutiny, you usually can still rent. Barnes said her company frequently deals with people with compromised credit. People who have lost their homes to foreclosures or short sales, for example, or who’ve been unable to pay medical bills “often can still go ahead and rent,” Barnes said.
At annualcreditreport.com, you can get one free credit report yearly from each of the three main reporting agencies.
The site creditkarma.com also offers a look at your credit profile along with tips on how to improve it.
The availability of low interest rates
Visit bankrate.com to compare mortgage rates offered by credit unions and other smaller institutions with those of larger banks.
As long as interest rates remain low, go for a fixed rate rather than a variable one. That safeguards you while allowing the opportunity to refinance later if you want to.
Once you have a good-faith estimate of closing costs, go through it line by line, Horowitz said. Check for all costs and fees.
The property’s rate of appreciation
Even though property values are rising quickly in many locations, people who expect to be in a home for only a few years are still better off renting because of expenses related to recouping transaction costs. A home’s value typically gains about 2 percent a year over inflation, Horowitz said. Other investments can do better.
“The only exception is a property that’s really undervalued to begin with and that you’re going to put a lot of work into,” he said.
“We tell our clients not even to think of their home as an investment,” Horowitz said. “If you’re going to buy, buy it to live in.”
