Tuesday, July 17, 2007

Renting vs buying

I recently had a conversation with a friend of mine about renting a house vs. buying one. He said that I was throwing away my money as a renter because I was building no home equity.
‘One doesn’t build equity in this market climate’ I said. ‘One looses equity.’

He said I am merely paying for someone else’s house. ‘That’s true’ I said. ‘But if you pay interest to a banker you are paying rent for the money you borrowed thus paying for his house. Not much difference in my book.

I explained to him that if he buys a house and is making interest payments of $1,400. per month, he is merely renting the money. Even if a portion of it goes to the principal, by banker’s math the majority of that payment for the first half of the loan’s life goes to interest, no equity there. (So by his logic, throwing away money.)

On the other hand if he rents the same house, especially in this market, rents are going to be less, and after a year he has a lot more money in his bank account. ‘You actually build more equity in cash savings than you would in home purchase payment equity.’ I said.
As home values descend, the effect will compound. For my money, renting is a better place from which to watch.

I don’t know if I made my point, but this one’s for you Mike.
Vern

Life is sweet for North Port renters

"There is an abundance of rentals out there," said Donata Noone, a rental specialist with ERA Sun Coast Real Estate. "Buyers bought homes and condos when the market was good. They then tried to flip them, but realized they couldn't and decided to rent them instead."

But with hundreds of houses, condos and apartments for rent in North Port, not every owner has been able to find a tenant. So rents are plummeting, and so are rental standards.

Dennis Black, a Port Charlotte appraiser who recently completed a study of North Port's housing market, said apartment building owners are suffering the most.

"Why should tenants renew their leases when they can rent a house for about the same price?" Black asked. "I am told that apartment occupancy is down to 80 percent."

"Rents are coming way down because of supply," said Karen St. Pierre, a rental specialist with ERA Advantage Realty. "A 1,800-square-foot house without a pool that rented for $1,400 a year and a half ago is now renting from $900 to $1,000 a month."

That represents a 36 percent drop and has created a wave of resentment among investors, who have seen their taxes and insurance bills move rapidly in the opposite direction.

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