Re: Buying vs. Renting


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Posted by Olinga K. Abbott on August 21, 1997 at 23:19:12:

In Reply to: Buying vs. Renting posted by Mark Seiler on August 21, 1997 at 14:52:18:

: Besides the downpayment, can someone tell me
: what liabilities I would incur if I purchase a
: home/townhouse vs. renting (taxes, closing fees,
: etc.). I am trying to determine the overall
: costs and benefits associated with buying vs.
: renting in the SF Bay Area.
: Thanks!

Mark,
This is actually a very complicated question. There are two questions one needs to ask when making the rent/buy decision: 1) How long do I expect to live here; and 2) How certain am I of staying here that long? In general, the longer and more certain one is of staying in a particular house, the more attractive it becomes to purchase it.

Let's discuss the advantages and disadvantages of homeownership and renting (this is just off the top of my head):

ADVANTAGES OF HOMEOWNERSHIP: tax shelter (benefits increase with income), equity buildup (depends on loan term and increases every month), emotional satisfaction of homeownership, possibility of buying below market, constant payment amount, possibility of brokerage commission rebates (like using the owner of this site or myself (shameless plug)).

DISADVANTAGES OF HOMEOWNERSHIP: maintenance and repairs (increase with age of home), purchasing and selling expenses (such as origination fees, brokerage fees, transfer fees, etc.; remember, costs are incurred in both purchasing and selling), risk due to real estate market fluctuations, possibility of overpaying

ADVANTAGES OF RENTING/LEASING: flexibility (may move at expiration of lease or after notifying landlord if renting), no selling or buying costs, landlord pays repairs and maintenance, no large initial cash outflow

DISADVANTAGES OF RENTING/LEASING: flexibility (may be required by landlord to move), no equity buildup, no tax shelter, possible problems with landlord, rent will rise with inflation (in other words, possibly every year or so)

The usual answer to your question will be, assuming your situation is typical, that if you plan to live in a house for 4-6 or more years, you should *probably* buy; less than 4-6 years, rent. Of course, rarely are you given the choice to buy or rent the same property, but you can use this method to decide between similar properties.

A real analysis of this problem requires use of discounted cash flow models (not as difficult as the name seems) and details of your situation. If you want more information, email me at olinga@usa.net

Olinga K. Abbott
Affiliate Broker
Homeowners Concept
"1% Buyer Incentive"
2701 S. Roan St. Lot 142
Johnson City, TN 37604
(423) 928-6136
olinga@usa.net


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