Last updated : Tuesday, March 24, 2009

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Lifestyles of Renters vs. Buyers

With the state of the economy the way it is, housing has been a hot topic. We're constantly hearing about great real estate deals for people who can qualify for a mortgage. If you rent and fall under this category, perhaps you're tempted to finally make an investment in property. Maybe you feel like now is your best opportunity to eventually make the biggest return off of record low rates and prices. And perhaps what you're hearing is true. But when making a big decision like buying a home, don't let price be the only factor that's driving your decision. Even if you can qualify for a loan, make sure your lifestyle qualifies you for all that comes along with owning property.

"This is the best time to buy in decades in terms of inventory and interest rates," says real estate analyst Dani Babb, founder of The Babb Group. "You can get into the market super cheap, buy a home and pay 5.25 percent or less for the home while still taking the tax deduction." If you have the means to qualify for a mortgage, you could find an excellent opportunity to invest in property right now.

In the same vein, renters can find great deals, as well. "Right now, investors that are hanging on and not letting their homes go into foreclosure are scared to death and want renters badly," says Babb. "You can get a rental home for half or less of the price it would cost to buy that house. And many home owners are willingly taking losses each month to make keep their homes from being vacant. Even if you've had bad credit, a bankruptcy or foreclosure, many landlords will rent to you anyway."

Finances aside, Babb emphasizes the importance of making a choice that fits your lifestyle. "What will keep you awake at night? You want to do what you think will help you sleep. That is important, too."

For instance, if your job doesn't guarantee that you'll be in the same city for the next five years, then maybe buying isn't for you. Or if you rent and appreciate the fact that you never have to hire a plumber to unclog a drain, then responsibility for home repairs is something you should consider.

"When you own a home, you are legally responsible for everything," says New York real estate lawyer Nathan Erlich of Nathan Erlich P.C. "You have to be careful of renting laws, i.e. if you can rent your basement out, things like that. As a landlord you have to know who is living in your house, too." In terms of repairs: "If things break in the house, they'll need fixing and you will be responsible," Erlich says.

Whereas renting is much less hands-on. "As long as you pay your rent and keep the house in good condition, you're set," Erlich says. He cautions, however, that "you want to make sure you look over the lease before you sign it to make sure it says that if anything happens to the property, the owner is responsible."

So what are the overall pros and cons?

Pros of renting:

-Flexibility
-Low prices
-Lots to choose from
-You can rent with bad credit from many landlords today that are scared
-Some states allow to deduct rent on your taxes
-Easier to move (small commitment time)
-You are a "rover" and have a hard time staying in one place for long
-You are in college and don't know where you're going to live

Pros of Buying:

-Tax write-off
-Appreciation
-Low prices
-Historically low mortgage rates you can lock for 30 years. Tip: Make the payment twice a month instead of once a month and pay it off in 18 years!
-The sense of ownership and settling down

If you are thinking about renting, certain items will help you negotiate your rent down, according to Erlich. Make sure you have: 

-A credit report
-A reference from an old landlord
-Proof of your last 12 months-worth of payment
-A copy of your last tax return or W-2 

If you are ready to buy, read this article for some tips on the process of purchasing a home. 

 

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