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Jane Dough Perfect (Real Estate) Storm? Stay Out of the Rain
Jane Dough Perfect (Real Estate) Storm? Stay Out of the Rain| Perfect (Real Estate) Storm? Stay Out of the Rain |
| Our Bloggers - Jane Dough | ||||
| Thursday, 29 May 2008 17:10 | ||||
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Real estate whips up a financial frenzy like nothing else. When house prices were rising faster than American Idol’s ratings, buyers were bidding sight unseen just to get into the market; now that the market is circling the drain with house prices dropping, many of the same people who were frozen out in bidding wars two or three years ago are reluctant to jump in because they fear prices will drop even further – that is if they can even get a loan. So what should you do if you want a roof over your head – especially if you live on one of the country’s coasts? Rent. Here’s why -- oh, stop with the “writing a rent check is like throwing money away” argument – according to David Leonhardt in The New York Times, renting can make much better economic sense because it involves only one recurring cost – that monthly rent check – while owning a home involves mortgage interest (only partially deductible), mortgage principle, repairs and taxes. And there’s one other big financial reason to rent: it many parts of the country it’s more affordable. Leonhardt suggests the following exercise to compare and contrast the cost of renting versus buying: find two comparable houses, apartments or condos and divide the price of the house for sale by the annual amount of rent. Leonhardt calls this the “rent ratio”; but it’s really a price-earnings ratio that is familiar to investors. So? What do you do with the resulting number? If the number is high, say 20 and up, that means that the cost of owning a home exceeds the cost of renting. Sign the lease and take your down payment money and invest it. But being a committed renter doesn’t mean getting a pass from saving. Just because you aren’t currently putting money aside for a down payment on a house, doesn’t mean you shouldn’t continue to save for the future. As a matter of fact, because you aren’t paying down a mortgage, building equity and (eventually, at least) enjoying appreciation of your home’s value, saving is just that much more important. Just make sure your savings is growing faster than the rate of inflation. More about that next week. Comments (1)
RENT FOR SURE! written by molly, June 02, 2008
I agree. Great article especially for what is going on right now in the realestate market. My husband and I own a home. We are going to sell and rent. We have decided to invest our profit in the stock market and other areas. And watch prices drop even more. Then at that time who knows maybe we will but some real estate but it will not be in Orange County, where we live now. Maybe Palm Springs..then we can retire there..with our investments.
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| Last Updated ( Thursday, 29 May 2008 17:11 ) | ||||
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Jane Dough
Jane Dough is Daily Cent's own resident personal finance expert who knows that women have to balance more than just their checkbooks! Her mission is to help Daily Cents readers make sense of investing, budgeting, saving for retirement and education, real estate and taxes and to have a little fun along the way. Meaning: no lectures! After all, it’s about more than the bucks.