Are You Better Off Renting… Or Not?

There is a time to rent and a time to buy. Figuring out which is best for you and your situation means getting out the calculator and doing some math.

When you first make the move out of your parent’s home and into your own place, the logical decision is to rent a place. A few years later and probably things have changed. Life gets busy and you might forget to re-evaluate that monthly rental payment. It just might not be the best use of your money. 

Realty Trac reports that one-third of Americans currently reside in a housing market where leasing a three bedroom home costs more than 30 percent of the monthly median income, which is normally considered the benchmark for affordability of owning a home.

Half of American renters give up more than 30% of their income on leasing. That’s up from 19 percent a decade ago.  The number of Americans renting has increased in the last 10 years and the median national rent has also increased. 

Here’s where you have to do your homework. Compare your place to other places that are similar and first determine if you are paying market rent. If so, is your rent more than 30% of your income? If you are under the 30% benchmark, but are still feeling squeezed every month (and let’s be honest here), then could it be worth compromising on location or quality in order to own your own home? If you are on the fence it might be worth it for you to run some numbers. 

1. Find two similar homes, one for rent and one for sale. 
2.  Divide the sale price of the one by the annual rent of the other;
3.  Sale Price/ Annual Rent = Price per Rent Ratio
4.   A PRR of 1-15 is a sign that it might be better to buy than rent.
5.    A PRR of 16-20 suggest it might be better to rent than buy
6.    21 or more means renting might be best.

Reasons to buy include:

•     Stable Income
•    Available cash for a down payment and extra for emergencies.
•    Plan to stay in the house for a minimum of three years.
•     Enjoy tax deductions available to homeowners.
•   Expected home value increase.

In addition to the financial reasons outlined above, owning a home gives you security in knowing that you can move when you want to move, and not when your landlord determines it. The ability to remodel or re-decorate on your own terms. Pride of ownership that renting just can’t satisfy.

What's worth more to you, Trulia or Family Dollar Store?

I find it very interesting and a little bit ironic that Zillow is buying Trulia for $3.5 Billion and The Dollar Store is buying Family Dollar for $8.5 Billion. How can it be that a dollar store is worth more than twice that of an online housing search engine?

Putting it in this perspective, there seems to be more value in cheap, everyday goods rather than free, useless information. The business world is getting it right!

In my opinion, Zillow and Trulia have always been parasites sucking the blood from the real estate industry. They only exist to make money from the advertisers on the site, many of which are real estate agents. These are the same agents that give their listing information to these sites, for free, so that these sites can then turn around and charge the real estate agents for advertising on their own listings! Talk about a scam! 

These same sites then use unsubstantiated information to tell unsuspecting (and yes, somewhat gullible) individuals what their house is worth. Are these the same people that believe everything they read on the internet? I think there is a good possibility.

Ok – if you live in a brand new, cookie cutter development, then maybe Zillow will get your home value right, or close. But if you are like most people, and live in a unique home that maybe has had some remodeling, or has been around for more than 5 years, the “zestimate” will be bogus. It’s simply an algorithm based on what homes nearby have sold for. It doesn’t look at, what we call in the real estate business, the amenities. Is there a busy street nearby, a park, a school, are the floors or countertops upgraded, have the bathrooms been remodeled, etc., etc.? I think you might get the idea. Every home is unique and these amenities will either add or subtract from the value. 

A “zestimate” is easy, however. You don’t have to talk to anyone and suddenly you are an expert and know all about home values. Bull. It’s just information. Knowing what to do with the information is the wisdom an experienced and professional REALTOR® brings to the table. Don’t be fooled (or be a fool) and believe everything you read on the internet. Some of it is just not true.

Penny pinchers unite! That cheap merchandise is getting you more for your money than the free useless information. But being penny wise and pound foolish still puts you on the short end of the stick.

As I write this article the market is changing. Today it is a seller's market just brimming with high hopes for all sellers - and then tomorrow it has hit the top and is tumbling faster than dice on a hot crap table in Vegas. Well, not exactly, but the question on everyone's lips is can it sustain itself?

I read that the Santa Clara market was slowing down. Which usually means the Santa Cruz market will follow. Yet we are seeing places selling for more than ever in pockets around the county., like Capitola and the west side of Santa Cruz. If you venture out from town a little to the hills of Corralitos and Watsonville, you find homes that linger a little longer on the market. Prices are a bit more flexible and negotiations are the norm. 

  

Where a house is located does matter. and how it’s price compares to the market price matters as well. Different areas are exhibiting different lengths of time to sell. Different price ranges have different lengths of time to sell. But actually, there are many factors that affect real estate sales and it is difficult to point to just one statistic and say that’s it! Which, of course, is why you want an experienced professional involved in helping you to prepare, price and sell your house. :-) Call me if you need a referral.

The graph below shows condos sales in the different areas of the county. The numbers at the top of each column show how long it is taking homes to sell in those areas and the red line is showing how close the sale price is to the list price. If looking at this graph one could deduce that it takes longer to sell a condo in La Selva than is does in Seacliff. What is being totally neglected is the fact that there just aren't a whole lot of condos in La Selva and the ones that are there, are the higher priced beach condos. The higher price alone will be a major factor in determining length of time to sell. The other factor is not knowing what price the sales started at. Were they at a reasonable market price or were they pricing higher? That too will affect the length of time on the market. 

I like to use these graphs as a starting point for discussion and then do more research to find out the rest of the story. 

How quickly a house sells might also just depend on how long it takes for the “perfect buyer” to come along. The "perfect buyer" is defined as that person looking for exactly what you are selling. If the buyer looking for the Victorian house with a white picket fence in the school district of her daughter's best friend, and you happen to be selling that house, then Voila! Your best chance of selling your house has just walked in. Don't let that one get away!

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