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Top 5 Reason to STOP Renting

Top 5 Reasons to STOP Renting and Buy a Home


If you google, "is it better to buy a home or rent", you will find strong arguments for both sides. In the article below you will see why buying a home is much better than renting. The name of this article is very important, notice, "buy a home", not a "mansion". This article discusses renting compared to buying like items.


Reasons to Rent



However, the two variables that can make renting a better solution than ownership are location and years of ownership.


Location:

An example of a bad location to purchase would be when the average time to sell (DOM Days On Market) is more than 200 days. This means it will be very difficult to sell the home and leave the location. When 200 days is the average number of days on market (DOM), your home may require 400 days to sell. This DOM can be a red flag for purchasing a home. Every single city in Brevard County, Florida is a great location to purchase. Homes are rarely on the market for more than 90 days, unless the home has an issue (overpriced, termites, flooding and many times bad marketing). Cocoa and Port St. John are great locations for first time buyers.


Years of Ownership:

Unless a buyer plans to quickly flip a home, 5 years is a standard for appreciation to create some profit or break even. Home owners on average own their home for 13 years. Rent is relatively high when compared to home values (mortgage rates) in Brevard County. Many times in Cocoa, Florida a payback only requires 2 years on a home purchase.


TOP 5 REASONS TO STOP RENTING AND BUY A HOME


5 - Property Stability


Renters lack of stability:


Renters can be forced to move.

As a renter you do not have control. In most rental agreements the owner of the property can force you to leave at any time with correct notice. In most states a maximum notice required is 60 days. This means that renters can be forced to move with a 2 month notice. Moving is not fun or an easy task.


Landlords and property management companies change.

Landlords own rental properties to make money. Money can be earned by collecting rent and selling the property for a profit. When selling the property, prospective buyers will need to see the property, both the inside and outside. This will disrupt the tenants life and not offer any benefit to the tenant.


Property repairs are in control of the landlord.

A renter never wants to pay to repair the rental. The owner should pay for repairs, but what if the repair isn't seen as necessary? The landlord may not see a return on investment for a squeaky door, but the tenant will be forced to live with it or pay for it.


Homeowners purchase stability.

As a homeowner you will never be forced to leave your home unless you decide to quit paying taxes, or the government requires eminent domain of your property. Eminent domain is very unlikely which means that you will keep your home. All property repairs are your choice. If you like a squeaky door, you can let it squeak. However, when you repair the squeaky door, your home value increases. Homeowners purchase stability and peace of mind. 9 out of 10 people are either homeowners or aspire to own a home.



4 - Freedom of Choice


Renters lose the freedom of choice including many cosmetics.

This statement isn't completely true, renters can make minor adjustments as long as they are okay paying twice. A renter can paint the interior of the rental, but upon moving out they must paint the apartment again returning to the original color. Very few adjustments can be made to a rental without prior approval from the owner. This means if the yard doesn't have a fence for fido then it isn't going to have a fence.


Renters lose the freedom of flexibility.

Most rental contracts are based on an annual timeframe, however some are month to month. A renter must move out at the end of the contract if the owner chooses not to renew the lease. This can be very troublesome, life does not always line up with a contract. Careers, families and physical health can force change and this change does not usually line up with a contract.


Homeowners purchase freedom.

When you own a home, you can paint it, you can move walls and even build a fence. A homeowner can build on as their budget allows. As clothing styles change, so do home styles. A homeowner can update floors as often as they see fit. Homeowners have the legal power to do as they please (as long as it meets legal standards). A homeowner can choose when to sell their home, on what terms and for how much. In Port St. John, Florida many homes have been customized to fit the owners desires. It is very common to see large garages in the backyard storing boats and recreational vehicles.


3 - Financial Stability

Renter can plan on annual increases!

Every year a landlord will increase rent. The amount varies from owner to owner, however a minimum standard is 3%. In a short 4 years, the rent at a minimum will increase by more than $100 a month. That is over $1,200 a year additional for the exact same home, actually an older home. Every time an income producing property is sold the new landlord usually increases rent. New owners usually increase by hundreds, not a small percentage.


Homeowners purchase financial stability.

A homeowner has a few monthly costs that differ from renters; mortgage, taxes, insurance. Homeowners taxes do not increase much due to homestead laws. The homestead laws allow the homeowner to reduce the value of the home the state taxes. This is seen as both a reduction and a maximum annual increase. Every homeowner can claim homestead on one property, but if they own multiple properties, only the home they live in can be claimed as a homestead. The mortgage payment does not change. This is a difficult concept to understand When the homeowner takes the loan, the payment will stay the same for the entire term of the loan. The homeowners monthly costs will stay the same throughout the ownership of the property creating financial stability. If a renter's rent is increased by 3% every year, in 30 years a rental that started out at $1,550 will be $3,653 per month. In Cocoa, Florida, a home mortgage, taxes and insurance on an equivalent home would be about $1,000 a month. In 29 years the mortgage will still be $1,000. In 30 years the mortgage will be paid in full and the taxes and insurance will cost around $550 a month, almost 15% of what a renter will be paying.


2 - Short Term Savings


A renter will always pay more than a homeowner of an equivalent home. It is true, the renter does not pay for repairs or preventative maintenance, but budgeted homeowning is much cheaper than renting.


The following table represents monthly costs budgeted for a property investor, specifically a rental property.





The table clearly shows that…..


The monthly budget for the property is $985.21 per month. This number includes taxes, insurance, mortgage and even a maintenance budget. The renter is paying $1,550 per month for the same rental. That means that the every year the renter is paying $6,777.48 more than the home owner. This means that a family would give themselves a $6,000 annual tax free raise by purchasing a home.



1 - Investment and Long Term Equity


Renters never earn equity and it is true they are creating an investment, but it is for someone else.


Many books, professors and investors will tell you that a home is not an investment. I argue that homes can be a good investment as long as they are treated as an investment. The book on investments states that a home stops being an investment when the cost exceeds the final sales price. But I take it one step further, a home stops being an investment when the cost exceeds the price paid for rent for the equivalent lodging. In Cocoa, Florida, a 3 bedroom, 2 bathroom home is valued at $185,000. The property is currently rented for $1,550. The owners monthly costs are; $185 property taxes, $155 maintenance budget, $160 insurance and mortgage of $644 for a total of $1,144. When the rent increases every year at a rate of 3% after 30 years the tenant will have paid a total of $885,000. The owner of the property will have paid a total of $449,000 (which includes a 20% down payment). The owner budgeted $155 per month for maintenance (repairs and updates) so the house stayed current.


The average home in the USA appreciates between 3-5% per year. If the home appreciated 4% every year for the last 30 years, after 30 years the $185,000 home is now worth $577,000. This means that the homeowner profited $128,000 on the original purchase. Again, if they paid rent the entire time they would have lost $885,000 as compared to profiting $128,000.


The key to a home being an investment is treating it as an investment. If a homeowner renovates the entire home every 8 years, as beautiful as it may be the home will cost more than it will earn.


If you are looking for a property investment, or a home that can be both a home and investment property contact me at Adam@MaxfieldHomeSolutions.com or (321) 423-8283.


Written by:

Adam Maxfield

Realtor

Keller Williams Space Coast Realty

(321) 423-8283

Adam@MaxfieldHomeSolutions.com

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