Buy or Rent?

17. September 2007 by Burbank Real Estate.

I’m frequently asked if buying makes more sense than renting.  The answer is that there is no one answer as that decision depends on many factors, not the least of which involve your financial situation, job stability etc.

It warrants a good look and before I go any further, for the purposes of this discussion I’m going to assume that the person asking me this question meets the following parameters:

• solid job history

• no out of area relocation planned, at least for a few years

• good credit history and fico scores

• stable income

First things first, talk to a mortgage agent to see what amount you qualify for, if you don’t qualify for a loan the discussion ends here.If you look at rents in the Burbank area, here are the ranges:

• Studio apartments         $950-1175

• 1 Bedroom    ” “              $950-2475

• 2-3 Bedroom ” “             $1300-2815

Next item on my list is to ask what are you currently paying and are you interested in a condo or home?  Very important, as condos/townhomes bring association fees that can range from $180-400 or more per month.  This amount will cut into your monthly amount available for the mortgage.

Here’s what the available inventory looks like for homes and condos $300k-600k(nothing available below 300k):

• 62 homes available between the prices of $399k-600k

• 86 condos available between the prices of $298k-599k

Assuming a 6.31% average for a 30 year fixed(rate obtained from Ricardo Bueno’s excellent Industry Report) you will pay the following amounts per month(excluding taxes or PMI):

• $300k…………..$1858.87 

• $400k…………..$2478.5  

• $500k…………..$3098.12

• $600k…………..$3717.75

The discussion should then turn to a review of what you are paying and how that compares to the home inventory.  In addition, how comfortable are you with your current payment?

If you have left over monies each month and have been able to save up for a down payment of at least 5%, you are probably in a good position to own a home.  If you are struggling each month, be careful to jump into a home with the same payment as they can bring unexpected repairs with them.

You should talk to a CPA before you purchase a home to see what tax benefits you could derive from the purchase in terms of an annual tax deduction for the interest you pay out each year on your loan.  That extra incentive could make the difference if you are on the fence.

As you can see this is not a simple yes or no answer and much of the decision depends on your personal financial situation and goals.

Having said all that I think home ownership can be an extremely beneficial tool, not just for your enjoyment but from a financial planning standpoint.  Depending on where you purchase a home they can average decent returns.  It’s also a great way to build equity as opposed to doling it out each month to a landlord.

We need to appreciate the benefits of home ownership while respecting the fact that if you can’t afford a home you are better off waiting until your financial situation allows you to more comfortably purchase a home.

That’s my short answer!

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