Rent or Buy?

Tags: , , , , , , , , ,

Buy vs. Rent

There was the headline in the Baltimore Business Journal: Apartment vacancy hits 9-year low in Maryland. The article by Kevin Litten states, “A sharp rise in demand for rental housing has driven Maryland apartment vacancy down to a nine-year low of 8.6 percent as young people continue to shun homeownership.”

Demand for rental housing by people between the ages of 25 and 34 has driven up rents to the point that in 2012 renters devoted an average of 32.9 percent of their income toward housing. The cost of rental housing is up 3.4% over five years.

Families who owned homes were paying just 22.1 percent of their income toward housing, and those costs rose by less than 1 percent over the same period.

What are the reasons for renting and for buying?

Let’s look at the reasons for renting first.

  • Flexibility – if you don’t know how long you will stay in a particular area, renting works well
  • Career stability – many young people seem to change jobs frequently, renting works well
  • Credit – is either poor or not well established. On time rental payments can establish credit.
  • Income instability – It is hard to make a long term commitment on a house when you have worries about aq stable income
  • No maintenance expenses – when something breaks, just call the landlord
  • No down payment – while zero down payments are available, banks like to have the homeowner put some skin in the game. 10% to 25% is usual.

And the reasons for buying:

  • The biggest is equity build. Rent goes to the landlord, Mortgage payments go to the bank and you gradually pay down the mortgage.
  • Landlords generally raise rents, especially if the market for rentals is tight. If you are already paying a third of your income for rent, meeting the rent can get tougher. A mortgage payment is fixed for 30 years.
  • A symptom of inflation is housing going up in price over time. Many cities, before the recent housing downturn, experienced 7% increases each year, which doubles the house price in 10 years.
  • Rental payments are not tax deductible. The interest paid on a mortgage is deductible on your tax return. You can look at it as Uncle Sam helping you buy your house.
  • Creative control – you want to paint a wall purple, tear out a wall, hang every picture you have, no problem. You don’t have to get permission. You also don’t hear foot traffic from a tenant up above you or a stereo blasting.
  • A house is your castle, your rock. Ownership is stability. A house is private property and for the most part, we still protect private property rights.

The two groups renting the most are the people between the ages of 25 and 34 who make up 27.3 percent of all renter households in 2012 and the second fastest-growing group of renters, people ages 35 to 44 make up 21.5 percent of all renters. If these people ever decide to buy houses instead of renting, Maryland could experience another housing boom.

Trusted Home Buyers

Leave a Reply

Your email address will not be published. Required fields are marked *

Get In Touch