Out-Of-State Investor's Check List of Questions
By Neda Dabestani-Ryba
a Home is the American Dream. It is more than a place you put your
hat at the end of the day. It defines you, protects you, and prospers
with you. Yes, Home Ownership is a noble pursuit, but it always
starts with this first, important question: Should I buy or Rent
my Home? The answer, surprisingly, is not so obvious.
the question of “affordability” is an important one,
but that’s not the subject of this article. We have a free
calculator at our website. You’re welcome to use it. The
subject of this article, however, deals with the questions that
must be answered, before a renter can migrate into the magical
realms of HOME OWNERSHIP.
are 5 MAGIC POINTS that you need to examine, on whether or not
to BUY or RENT your next Home:
a home requires that you give a check to the landlord each month.
That’s it. You’re done. Everything else is simply
taken care of for you. When you OWN a home, you are in business
for yourself, and this means that you must handle all of the expenses
You are responsible, of course, for the monthly mortgage payment
to the bank...
You must pay all your utilities, including phone, gas, electric,
cable, trash, water, etc.
Don’t forget your responsibility to take care of maintenance.
Not having enough money in the bank account is not a good enough
excuse. If it’s broken, ya gotta fix it!
Don’t forget your Homeowners Association Dues, your Membership
Fees, Property Taxes, Special Assessment taxes, insurance…yada,
you rent a home, you give the landlord a check. When you buy a
home, you must ensure that all expenses are met and managed every
single month, forever...
and Buying have different financial commitments.
To rent a home usually requires a lease. Sometimes it’s
month to month; sometimes it’s a 12 month lease. But, no
matter what, there’s always a way out. Your commitment is
limited to the time you choose to stay and reside there.
When you buy a home, you usually sign a 30 year mortgage, which
most people would argue, is like forever. You are committed to
ensuring that the payment is delivered to the bank or lender every
single month, on time. They don’t care if you want to move
at some point. You can sell your home of course, but you can’t
just break your mortgage, like you can break your lease.
a home requires a long-term, financial commitment. Renting a Home
simply requires that you cut a check each month you reside at
the home of choice.
always appears that a renter will pay less each month on monthly
payments. Let me shed some light on this subject. Examined closely,
this is as far from the truth as the moon to the Earth. Let’s
use an example:
As a renter, you pay $800 a month, let’s say, that increases
5% each year. The math may differ with you and your landlord,
but you get the idea. Barring rent-control, this is inevitable.
As a Homeowner on a fixed rate loan at $1000 Principal and Interest
per month, the payment never changes…Never…Not ever…
In other words, the renter’s monthly rent will eventually
SURPASS the homeowner’s mortgage payment…Much faster
then you might expect.
this example, our Renter’s Monthly Payments will exceed
our Homeowners Mortgage Payment, in about 6 years.
renter usually does receive a tax benefit from the State and Federal
tax boards each year, sometimes referred to as a “renter’s
credit”. But the Homeowner receives a deduction on the Interest
paid on their loan. This is a huge benefit to the homeowner.
Let’s use the same example with our $800 renter. At the
end of the year, our renter might receive a $600 renter’s
credit on their 1040EZ form when doing their taxes. Simple enough.
Our Homeowner, on the other hand, paid a total of $12,000 in mortgage
payments, of which about $11,500 went towards INTEREST. This INTEREST
is a write-off.
Let’s see…$600 versus $11,500. Hmmm. I like that math.
That equates to a nice healthy tax return for most of us, come
April of next year.
those thousands of dollars in tax return, and go on a nice Cruise
arguably much, much harder for a renter to build wealth. There
is no built-in mechanism for appreciation, whereas the homeowner
has postured themselves wisely for the future.
Let’s say we have a renter that wants to get wealthy. Great!
They must go find a business to run, or a stock to invest in,
or come up with a great invention, or be the next rock star, or
follow a family friends “tip”, and go do Cattle Futures
from August to September (just an example, folks…I don’t
know anything about cattle…). In any event, most people
would be concerned that our renter is following the proverbial
“pipe dream” towards wealth.
But let’s say we have a homeowner who wants to build wealth.
Great! What do they need to do? Simple….Nothing…Pay
the mortgage…Live in the house…Go work your job. That’s
it. Real Estate appreciates in value, on average, over the long
haul, like no other financial vehicle. It is a virtual certainty,
and it is automatic. The homeowner controls the total value of
the home. That’s the magic of leverage.
Let me drive the point home: Someone might buy a house at $150,000,
let’s say, and over the course of 7 to 10 years, it is completely
reasonable to suggest that this very same house could be worth
do not have a built in advantage for building wealth, whereas
Real Estate appreciates in value as a virtual certainty. They
don’t call home-ownership the “American Dream”
subject of deciding on whether to Buy or Rent, is not simple.
In the end, it boils down to a question of complexity. Being a
Renter is simple. Being a Homeowner is more complex, and yet,
that does not mean that it is not within your grasp. It IS!!!
There are so many people that are just waiting in the wings, yearning
to help you get there. Real Estate Agents, Mortgage Brokers, Friends,
all of these resources around you, just about anyone can own a
home, and in this great country, the American Dream of Home Ownership
is completely within all of our grasps!
do me a favor. Give yourself the time to examine these important
questions first. Look within. As we all get older in life, we
yearn for more. Buying versus Renting is a common theme in this
journey. As we wave goodbye to the younger years, we say so long
to the simplicity of life, and we say hello to the promise of
prosperity, wealth, and a better tomorrow. We also say hello to
higher, more complex things. Often times, it’s simply the
willingness to accept complexity that will get you to the understanding
of luck on your journey, from Renting to Owning your next Home!
enjoyed providing this information to you, and we wish you the
best of luck in your pursuits. Remember to always seek out good
advice from those you trust, and never turn your back on your
own common sense.
Levine provides a solid, common sense approach to solving problems
and answering questions relating to consumer loan products. His
website seeks to provide free online resources for the consumer,
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news, and links to products and services. You can check out Tom's
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2004, by LoanResources.Net
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