Rent or Buy? Housing Choices

Learning Goals/Objectives:

• Identify the costs and benefits of buying a house.

• Identify the costs and benefits of renting an apartment or house.

• Clarify your personal goals related to housing choices.

Activities:

1. Ask: Should you buy a house/condo or rent?

The more common opinion is that owning your home is cheaper then renting. Is this true or false? The answer depends on a variety of factors, the most important being the cost of buying vs. the cost of renting the same or similar home. While local market conditions determine both the price of buying and rents, your personal wants are a big factor.

2. Review: Some common questions you should ask yourself:

1. How long do intend to live in the area?

2. Are you single, married - with children or planning to have children?

3. What are the local market conditions - for both renting and buying?

4. Why would want to you buy vs. rent?

5. Are you looking at buying as an investment - move in, then sell in a few years.

6. Are you looking at buying as an investment - buy and rent to someone else?

7. What is your job status? Are you comfortable in your job, stabile, etc.?

3. Ask and discuss ‘How can it be cheaper to rent vs. buying?”

The costs of home ownership will include, but are not limited to:

• Real Estate Taxes

• Insurance

• Maintenance

• Utilities (Gas or Oil, Electric, Water, Sewer, Garbage, Cable / Internet)

• Lawn Care

• Condo or Association Dues (if a condo or association managed)

• Other Fees, Permits etc

If you are thinking about buying a specific house, ask why the home is on the market or for rent. Is some factor forcing them to sell or rent – divorce, a job transfer, death in the family, etc.? The more you know, the greater your chances are of getting the best deal - whether buying or renting.

Home Purchase Advantages Disadvantages

• Builds equity • Maintenance costs

• Stability and security • Property taxes

• Free to change decor • Potential foreclosure

and landscaping and loss of equity

• Not dependent on • Less mobility

landlord

Renting Advantages Disadvantages

• Greater mobility • No tax advantages

• Not responsible • No equity

for maintenance • Possible rent increases

• No risk of equity loss • Possible eviction

Rent vs. Buy Example:

• The renter starts out paying $800 per month with annual increases of 5%

• The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000

• After 6 years, the homeowner's payment is lower than the renter's monthly payment

• With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years

Years	Rent Payment	Mortgage Payment	Monthly Difference	After Tax Savings	Yearly Difference	After Tax Savings
1	800	1000	-200	-50	-2400	-600
2	840	1000	-160	-10	-1920	-120
3	882	1000	-118	+32	-1416	+384
4	926	1000	-74	+76	-888	+912
5	972	1000	-28	+122	-336	+1464
6	1021	1000	+21	+171	+252	+2052
7	1072	1000	+72	+222	+864	+2664
8-30			*Savings increase every year*

If you do decide to buy, it's in your best interest to put down at least 20% of the purchase price, to avoid private mortgage insurance (PMI).

Materials:

Tips for Renters

1. When you meet with a potential landlord, be prepared . Take a completed rental application (if you have one), references from previous landlords, employers, and colleagues, and a current copy of your credit report.

2. Take time to review the lease. Look for restrictions on guests, pets, design alterations, or running a home business.

3. Get everything in writing. To avoid disputes or misunderstandings with your landlord, keep copies of any paperwork or correspondence. Follow up an oral agreement with a letter, setting out your understandings.

4. Protect your privacy rights. One of the most common and emotion-filled misunderstandings arises over the tension between a landlord's right to enter a rental unit and a tenant's right to be left alone.

5. Demand repairs when you need them. Know your rights to live in a habitable rental unit and don't give them up. Landlords are required to offer their tenants livable premises, including adequate weatherproofing; heat, water, and electricity; and clean, sanitary, and structurally safe premises.

6. Talk to your landlord. If there's a problem, such as, if the landlord is slow to make repairs, talk it over to see if the issue can be resolved without costly legal proceedings.

7. Purchase renters' insurance. Your landlord's insurance policy will not cover your losses due to theft or damage. Renters' insurance also covers you if you're sued by someone who claims to have been injured in your rental due to your carelessness.

8. Protect your security deposit. Make sure your lease or rental agreement is clear on the use and refund of security deposits, including allowable deductions. When you move in, do a walk-through with the landlord to record existing damage to the premises on a move-in statement or checklist.

9. Protect your safety. Learn whether your building and neighborhood are safe, and what you can expect your landlord to do about it if they aren't. Get copies of any state or local laws that require safety devices such as deadbolts and window locks, check out the property's vulnerability to intrusion by a criminal, and learn whether criminal incidents have already occurred on the property or nearby.

10. If it happens, deal with an eviction properly. You should know when to fight an eviction notice -- and when to move. If you feel the landlord is clearly is the wrong (for example, you haven't received proper notice, the premises are uninhabitable), you may want to fight the eviction. But unless you have the law and provable facts on your side, fighting an eviction notice can be short-sighted.

Source: http://www.nolo.com/legal-encyclopedia/checklist-29446.html

Assessment:

• Identify the costs and benefits of buying a house or condominium.

• Identify the costs and benefits of renting an apartment or house.

• State three of your personal goals or preferences related to your housing choices.

Download:

Lesson 10 Rent or Buy Housing Choices.doc