(Please See Part One Here)
Renting
Pros of Renting:
Additional opportunities: A rental deposit is significantly less than a down payment on a home so allows for spending or investing elsewhere.
Bigger or better: It is possible to rent a larger home or one in a better neighborhood than you can currently afford to buy. This could mean living for a year or two in a house on the bay with a boat dock or oceanfront when you might not qualify anytime soon for such a purchase loan.
Convenience: The fewer things you own, the less there is to take care of. It’s significantly easier to move should you need to again.
Deciding where to buy: When new to the area, some people like to rent for a year while figuring out which neighborhood they prefer.
Expected maintenance is less: Landlords are responsible for maintenance on high cost items such as: roofing, appliances, paint, and landscaping.
Cons of Renting:
Alternative investments are often more volatile: Investing large sums of money elsewhere, such as in The US Stock Exchange, subjects that money to the collective emotions, whims, and idiosyncrasies of society. There can be greater risk and volatility involved with alternative investments.
Beat by inflation: Rents keep going up. Orange County renters are burdened by the rising costs of rent every year at rates currently increasing three times faster than national inflation!
Customization is difficult: Renters need to ask their landlord permission to make alterations to the home’s esthetics. If they change something such as the paint color, they are usually expected to change it back before vacating or risk losing their security deposit.
Down the drain: Rental payments create equity for the landlord, but nothing for the tenant. At a rate of $3000 a month, in five years $180,000 is down the toilet.
Equity gains go unrealized: More people have become wealthy owning real estate in Orange County than by any other means. Real estate consistently increases in value over time due to an expanding population, high desirability, limited supply, increasing wages, and inflation.
Fast increasing rents in Orange County: The 2018 statewide initiative to allow rent controls anywhere in California failed by a wide margin last year. Landlords remain free to increase rents in Orange County by as much as the free market supports. According to The Bereau of Labor Statistics rental prices are increasing faster in Orange County than anywhere in the United States. This is the main reason motivating buyers to escape the rental trap.
Gotta go: Landlords can decide their renters have to vacate for many reasons, such as selling the property or because a renter didn’t follow the terms of the lease. Unless you secure a multi-year lease, this could happen with very little warning.
The Bottom Line:
For the short term, it makes the most sense to rent. The online real estate brokerage firm, Zillow, currently calculates the Breakeven Horizon at 4.1 years of home ownership before buying a home in Orange County makes more financial sense than renting one. Renters enjoy the ease of moving around more often, don’t have a large amount of money tied up in one place, and have fewer maintenance concerns.
In the long term, buying a home is usually better. In addition to creating wealth with an inflation-proof investment, buyers enjoy fixed payments, security, pride of ownership, and have something they can leave to their heirs.
Need more help deciding?
Here are two online calculators where you can input your own numbers. As the New York Times Calculatoris from 2014, keep in mind it does not factor in recent changes to the US tax code since that time. For the Realtor.com Calculator: click on “Advanced Options” and you can enter your own numbers. You can also contact me for a free consult and for help figuring out your numbers.
Ocean Real Estate News 