To buy or rent real estate? That is the question and for many in today's depressed real estate market - the question is not an easy one. If any of us had a crystal ball back in 2007 we would have also had a sign in our front yard to make sure that we sold our properties at the top of the market, paid our capital gains so that we had cash ready to short the stock market in the Summer of 2008. But that type of talk is like saying you'd go to Vegas to bet on who will win the World Series if only you had a time machine.
In the real world we have to make the decision to buy or rent based on many factors. Here are the arguments on both sides:
Why To Rent Real Estate?
- You don't have to tie up any of your money in an uncertain real estate market that is down over 50 percent in many parts of the country.
- You avoid any loss of your capital.
- The opportunity cost of your money in other investments have been better in other instruments (think: stocks, gold etc…) than real estate for years.
- You are not tied down to being in any one place.
- Despite being bailed out by tax payer money, banks wont lend to very qualified people with 20 percent down payments. They focus more today on "debt to income ratios" over meaningful track record of past payment, credit score, percentage down payment or other factors. One would assume that this would have to change but who knows.
Why To Buy Real Estate?
- Mortgage rates are at all-time lows assuming that you can get a loan at all. Sub-3-percent loans are not unheard of for non-conforming (sub-$729,000) loans. Jumbos and super jumbos (well over $1,000,000) are still around 4 percent when they were as high as 7 percent back in the boom times of the mid-2000's. Money has simply never been cheaper.
- Many markets are selling houses based on very low comps from recent short sales and foreclosures. There are still bargains out there.
- You fix your monthly "nut" for years to come. With rent, the landlord can jack your rates when he or she sees fit (or gets greedy) thus dares you to move. And moving is a major pain in the butt as we all know.
- You can write off the mortgage interest on loans as high as $1,100,000 which can be the best tax shelter left for anyone not the CEO of a hedge fund. Literally, this can return $50,000 or more back from what you pay on a mortgage.
- Some suggest that children do better in school when they live in a home versus a rented property.
- Down anywhere from 25 to 50 plus percent - it is possible that the real estate market is coming back thus there is the chance that there could be quick capital gains to be made on a home bought the right way today. With renting there is no hope for that.
Top producing real estate agents like Chris Cortazzo in Malibu and Jade Mills in Beverly Hills, California both think now is the time to buy but there are also alarmists who for the past few years have been right to warn about buying real estate. Only you can decide what is right for you and your current situation as there are strong reasons why you could decided to either buy or rent.