Who says you have to own a home to live the American Dream?
Renting can actually be better for your bottom line and lifestyle.
Controlling the Asset is the Real Game Here
Before the housing boom went kaput this year, homeownership was widely considered a great investment for our U.S. Veterans. But now, with the increasing rate of mortgage foreclosures and declining home values, renting may be a more effective option. Here’s why;
1. Renting Can Save Money
According to some myth hucksters, renters are just tossing their money away. But in reality when you buy a home, the new home owner is paying for closing fees, mortgage interest, property taxes, private homeowners’ insurance and maintenance. These costs that return nothing on your investment. You’d be better off banking that money, putting it under a mattress or saving up to buy the new GM Electric VOLT car coming out in 2010. Or heck, put your money into the stock market and choose world class companies to invest in.
2. Homeowners’ Tax Deductions are Overstated
Conventional wisdom says that buying a home saves you money because the mortgage interest is tax-deductible. But a study by the National Multi Housing Council, a national advocacy group representing the interests of large apartment firms in the U.S., says that half of homeowners do not get a break, because even with mortgage interest and property taxes, their total deductions do not exceed the standard federal tax deduction which current stands at $10,900 for couples and $5,450 for singles. Besides, isn’t it weird that we might by a house just because of the tax deductions? Goes against what we were told but that’s a reality…people do make the buying decision based on this paradigm but I do think this is a new day and home ownership probably ought to based on something more concrete.
3. More Options are Available to Renters
With fewer houses and condos selling, more owners are converting their properties into rentals or providing incentives to lure prospective tenants. In condo-heavy areas like resort cities in
4. Renting Can Provide More Flexibility
Buying a home is a big commitment. If you have to move for any reason, your property would need to appreciate by at least 10% for you to recover your sales costs, which typically takes about five years. Renting allows you the freedom and mobility you need to find the right job before you tie yourself to a massive home investment.
OK, I am speaking to younger veterans here when I say, hey this is NOT new folks. Back in the early 90s, we had a housing recession. The same exact principles above applied then. In fact, as I was writing this I was telling myself that I could have just copied and pasted this article and put the date as 1993 and it would be relevant. Why? Because housing markets in
Furthermore, what we are taught at the basic level is that the American dream is to “own your home” but this idea has long been a old axiom that is NO longer relevant. The real truth, as all of us with real estate backgrounds know, is that ownership is NOT real unless, you are like the less than 2% of homeowners that have NO mortgage. You see, most of us, are mortgaged up which means we really don’t own our home. The reality is that we have the “BUNDLE OF RIGHTS” to control the asset whereby the term “BUNDLE OF RIGHTS” is actually a legal term used in Real Estate Law. What that means is that whomever as the “BUNDLE OF RIGHTS” control the asset can direct it’s control and what we are after here as investors is controlling the asset.
Think of this concept like this….would you rather control an asset with LEASE OPTION TO BUY FOR 3 YEARS whereby you rent for 3 years and have an option to buy the property at a fixed price and when that home goes down by 15% per year or would your rather “own” a home that declines in value by 15% per year and be stuck with the negative equity. In the former scenario, you just keep renting or walk away. The latter for lack of a better word, you’re screwed. You got your butt kicked right?
Serious real estate investors lock up properties with options because it gives them control and rights to control the asset as time and markets change. Pure ownership gets you control of the asset but also gets you locked in and in declining markets, you get slammed. Now when things were good, you made out like a bandit but in this market, is home ownership the way to go?
For me, I would find a motivated seller and negotiate a serious lease option to buy at a fixed price at some point in the next 3 years and exercise that option when the market returns to form. If the market does not come back, I just don’t exercise the option and if it does, well, I make out like a bandit all the while enjoying the virtues and benefits of renting in a declining market.
Something to think about right? Remember it’s like the game of monopoly, whomever controls the asset wins.