Los Gatos Weekly-Times

Homes

To buy or to rent a home? That's a tough question

There are advantages to both of the options

By Rose Meily

Once you move to an area, one of the first decisions you need to make is whether buying a house, instead of renting, is the right direction for you. Since owning a home is the "American dream," many people assume it is always to their advantage to buy a home, and most of the time it is. However, there are circumstances that dictate renting may be a short-term option.

"There is an upside to renting," according to Ronny Santana, a Realtor with Coldwell Banker in Saratoga. Santana said for people who have just relocated to an area and are still undecided about where they would like to live, or for persons who would like to free themselves of the responsibility of home maintenance and repairs, renting may be the way to go.

In the long run, however, Santana and other Realtors point out buying a home "makes perfect sense" and would be a good investment if you plan to keep the home at least three to five years in order to offset the costs of selling and moving, and benefit from appreciation of the home; if you are psychologically prepared to take the plunge, since a house needs more care than a rental unit; if you have extra savings, because you will encounter costs for repairs and maintenance of a home; and if you can adhere to "forced savings" and are disciplined enough to pay your mortgage payments on time.

Renting can cost more than seven times more annually than owning, according to a newly revised consumer education brochure from the National Association of Realtors. The brochure, "Why rent when you can buy?" challenges certain assumptions about renting versus buying and helps Realtors evaluate with their clients and customers whether homeownership is right for them.

"Housing is a good investment, and owning a home makes sense for a lot of current renters, but many would-be homeowners are reluctant to take those first steps," said Thomas M. Stevens, president of the Realtor association. "Given their experience with homebuyer concerns and insight into local markets, Realtors can counsel consumers about their options and provide the information and support people need to begin their journey toward homeownership."

Thomas Barrett Schaefer of Windermere Silicon Valley Prop in Los Gatos believes in the cliché, "Buying a home is one of the smartest financial decisions most people will ever make." The tax benefits received and long-term gain in the rise of a home's value over time make buying a home a good investment, he said.

The Federal Reserve Board also comes to the same conclusion as Stevens and Schaefer, and estimates homeowners have a net worth nearly 36 times more than that of renters. Over the past 10 years, the cost of rental housing in the United States. has increased an average of 3 percent per year; average rents are projected to rise 4.1 percent this year alone. With a 3 percent annual increase, a current rental payment of $1,000 per month would increase every year and amount to $137,567 after 10 years, with no wealth accumulation.

In contrast, a $210,000 home purchased today with a down payment of $10,000 and a 30-year fixed-rate mortgage at 6.5 percent would cost a steady $1,100 per month and yield a net worth of $138,521 after 10 years, assuming an historic 4.5 percent annual appreciation rate.

Best of all, according to former Silicon Valley Association of Realtors president, Judy Jarvis Ellis, "Ownership establishes independence--financial independence from the opportunity to build equity and retain a greater portion of earned income; personal independence through the pride of homeownership."

Ellis is a Realtor with Alain Pinel Realtors in Palo Alto. She and other Realtors suggest before making the decision, you should find out what you can afford to buy and get pre-qualified for a loan; select a Realtor you can trust; select an area in which you would like to live; and set aside funds you can use for maintenance and repairs.

Schaefer stressed, "Seek a Realtor you can trust who can guide you to learn more about an area and its assets, because location is a key factor to buying."

Here are some differences between renting and buying a home:

Renting

* More fixed costs for the term of the lease

* Not gaining equity, but not losing it either

* When the lease is up, you can just move

* There is generally less work in maintaining a home or apartment

* Smaller amount of up-front cash

* No matter what happens with the value of the home, you will never gain equity

* Limited--or no--ability to personalize your living quarters

* No tax advantage to renting; your landlord gets any and all tax breaks that are available

Buying

* Variable costs

* Equity may go up, down or stay stagnant

* If you want to move, home generally must be sold

* Work needs to be done by you--or paid for by you

* Generally a larger initial investment--the down payment

* Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase

* The ability to remodel and redecorate the home to match your needs and desires

* There can be tax advantages attached to home ownership; consult competent legal and/or accounting advice for details for your situation.