The Seacoast BankNote

The Eternal Real Estate Debate: Rent vs. Buy 2019

Posted by Seacoast Bank on Oct 12, 2019 8:00:00 AM

AdobeStock_175584447Rent or buy? This decision is made more complex when you consider that renting and buying both have robust advantages. Likewise, they both have discrepancies that can be undesirable at times. 

No matter how many times it is repeated, it cannot be said enough. You never can have a one-size fits fix to the rent vs. buy debate.  The decision should be based on the same factors that drive all your investments. Ultimately, it comes down to you as a customer and as a venture capitalist of one.

Your decision will be based on these things in most cases:

Affordability

You may make several moves in your lifetime. What does your affordability look like right now? What can you budget safely to also factor in all the other dreams you have in mind? This is the first thing you need to think about. Sit down with your family and count the cost. Once you do that, the decision will start to form a more solid shape in your schemes. 

Family-orientation

Is your family younger, older, large, small? There are so many variations to family living conditions. This is another key reason why there is no one size to fit the rent vs. buy eternal debate. You will need to select based on where your family is going, and how it is growing. That also includes life outside of your four walls. Your residential choice will put you in the proximity of the people you do life with. In this choice, the size of the structure and location become determiners. 

Financial planning interests

This will be more ambiguous. Every person approaches this differently. You may have started from an inheritance or you may have come from a low-income beginning. Your point A start has myriad variables. The combinations for your progress in terms of B through Z are equally diverse. How much you want to invest in terms of stocks, real estate, house flipping, and more will add weight to the rent vs. buy decision. 

Cost of living

The cost of living will be more than just the mortgage or rent per month. You will have to factor in the regular cost of utilities, home maintenance, local taxes, retail prices, and their common rates. All of these issues average out to form the basis for realistic budget making to live in a given place. 

Proximity to interests

Of course, convenience matters. This will again be varied for everyone. What matters to you? What do you want/need to be close to? Choosing rent vs. buy will also have to do with what options are available in reasonable proximity to the medical complexes, brick-and-mortar retailers, banks, and more. These all factor into your lifestyle. 

Consumer beliefs

At the end of the day, you will have to make up your own mind about your beliefs for home ownership. This is where the decision will become abstract, but ultimately the most rewarding. This is your life and there are so many doors to open. One of them may be the door to your new home. 

Marketplace decision drivers

The below sections describe the influence that marketplace conditions have on a property buyer's decision. 

Median sale numbers

Within the month of April, Redfin data was able to construct some estimations for rent and buy consumers. Redfin is a national real estate brokerage. The data they constructed compares the median sale price for homes within the United States. 

Comparisons from Redfin showcase median sales from a 200 to 600K USD range. The comparisons were made over 90 day periods for each of the neighborhoods reviewed. Data was compiled with general comparisons of the nation, and then within major metropolitan areas.

This research compared statistics from 2012-2019.  

Comparing structural options 

Some of the decision between rent vs. buy falls to the available housing structures. According to Harvard 2018 report, within the last 30 years, 40 million housing structures have gone up in the US. This vast increase in building projects may impact the bonus values of both taxation and property appreciation that homeowners enjoy. If this impact leans to the negative, then this may inspire certain families, population demographics, workers in certain industries, etc. to choose rent alternatives. 

Residential area conditions 

The location has always been a key point of residential choice decisions. Some of these factors stem from simple things like landscape. Others come from things like proximity to relatives or public services. Yet there is also an effect that the quality of locations have on the rent vs. buy decision. 

Let’s say that you want to buy a home. You are uncertain, however, about investing in property for a long-term plan. Mostly because of imminent domain deprecation of the surrounding property values. 

In this case, the location itself impacts your decision. This analogy shows that long-term property ownership in this area may not be the best option for your interests. However, you may still have many other key factors for moving into this locale. Instead, you choose to rent within the area for all your other interests, so that money is not lost in a long-term risky venture. 

Federal insights

Residential area condition factors are referred to by the Federal Reserve as "Consumer and Community Context". The Fed has been conducting research into the community context since the beginning of this year. 

Cost per monthly basis

The rent vs. buy decision can also be brought down to terms of the monthly cost. Some families may require a more lenient monthly obligation than others. In terms of the average cost per month, the following figures surface: 

Average monthly mortgage= 1,578 USD

Average monthly rent=1,267 USD

The difference in cost on average= 311 USD

A 311 to the nearest whole dollar difference in average metropolitan costs is more attractive for moderate-income families. In their case, they will opt to rent to save themselves from lateness fines and other duties. 

This data does not necessarily include taxation. Tax liabilities for different regions may increase or decrease the average cost. 

Loan approval acceptance conditions

Loan approval is a driving factor of this ongoing debate. Specific groups find different desirable aspects in the loan approval process. For moderate-income families, rental properties may be simpler to get approved for. Mortgage approval, however, may offer some better crediting options for long-term goals. 

Social demographic factors

These sections analyze the influence that laws, minority group interests, and other socioeconomic factors have on a consumer's decision to lease or buy:

Legislative influence

In many states, there will be housing debates at the state government level. The politics of community zoning debates, regulations, etc. will impact the rent vs. own decision heavily. The question is what are the exact details of that effect on your decision?  

Minority group interests

Your social group demographic may also determine some things about your decision. For example, if you come from a Latino background, you may want to live in a residential area that has primarily Spanish-language residential services. This will influence your rent vs. buy decision in some ways. 

Expatriate interests

Perhaps less common than other factors, expatriates will have a unique position on rent vs. buy in the United States. This decision will be determined by factors of the reason for the immigration, the duration of the foreign residence, and so on. 

Disability interests 

There comes also unique qualifiers for disabled residents. In your case, the rent vs. buy scope has several different elements. If you purchase a home, you may have to make modifications to accommodate your specific disability. Do you have the income to do this realistically at this moment? If not, you may instead choose to rent in a place that already has the features built into the complex. 

Disability will also impact this decision if you are on government assistance for your disability. In this case, do you get civil benefits to improve your quality of life? Will it apply to a mortgage or does the fine print indicate applying funds to a lease? 

Military service conditions

If you or a member of your family structure is an active armed services member, this can impact your rent vs. buy decisions. Your relocation could be predetermined by superiors.  There will also be armed services benefits to reap the rewards from. 

Education zone interests

This will go for all levels of education. If you have children attending grade school, your residential decisions may be heavily impacted by which school district you want them to attend. You may be a young family that wants to live off-campus of your University or grad school. You may be a single individual who needs a non-residential apartment or condo within your education zone. 

In all these cases, your rent vs. buy decision may be influenced by what options are available in these school districts. It isn’t as cut and dry as “moving near the school”. Cost of living may be greater in the immediate university location. Your exact housing choice may seem ideal in proximity to the school you hand-picked for your child, but county zoning could change your plans. In those cases, you’ll have to reach a personal compromise between the perfect school and the perfect home. 

Circumstantial factors

These sections examine the circumstances of a local area that may drive people to lease or buy depending: 

Commute factors

This is a bit more vague of a deciding factor for rent vs. buy. You will need to consider your options based on your weekly work commute. You may have taken a job that is in the opposite city that you live in. There may be no practical choice for more convenient proximity. You will then have to compromise and seek residence from a commute-convenience perspective. What sort of residential options exist within a  feasible distance of the main highways you travel? Can you find a residence that cuts your commute route down considerable, saving you fuel and mileage economy in automotive ownership?  If the answer to that question is yes, what do the residential options look like? 

Likewise, your decision will be based on commuter time. What is the traffic like in the residential area you’ve chosen? Can you find a residence nearer to routes with less congested traffic? If so, then what are the housing agreement options in this immediate suburb? Are they practical to your budget? You’ll select from this pool in those cases. 

Environmental factors

This can have a lot to do with the reasons a person chooses a certain residence. Intense city pollution will depreciate the value of property to the point that a young family on moderate income may not consider buying a good option. By the same token, a family may be eager to buy into a community that is active in conservation because of the longevity of their property and its value will have. 

Some states will impose environmental taxes as well. This can change the rates of property tax values. In this case, the tax-deductible status of home ownership becomes more attractive. 

Conditions and repairs

Structural conditions will play a key role in the final decision to rent vs. buy. Many low-income families don’t have the means to support remodel starting out. Scaling the budget for home repairs could take a span of years. In this case, rent may be a better option if the rental property is maintained well by the landlord. 

There is the factor to consider that rental property may not be well cared for by the landlord. It could be that the building structure itself is below code inspection standards. An unfortunate reality rises to the top in this situation. Repairs may be prohibited for the tenant to make independently. In this situation, the versatility of home ownership provides greater ROI and improves quality of life. 

Pet ownership 

Pet ownership is often a subject of residential agreement issues. Oftentimes, there are stiff regulations and policies on what tenants are allowed to own by way of pets. In this case, the most convenient way to settle the dispute is typically to buy a home instead of rent. 

Investment opportunity interests 

These sections explain various investment opportunities that might determine the choice between leasing or buying for some consumers: 

Small business ownership and entrepreneurial ventures

For entrepreneurs, your residential choice may come with the benefits of tax deduction. You want to start your small business ownership outright, and you may use your in-home office to set up licenses. What is your best option? Will you save more money as a renter and can you write this off as a business expense? Or, will the tax deductions of home ownership coupled with a tax write off for office expense and give you even better prospects? 

Rent-to-own equity options

The agreement options from realtors are changing in more Millennial-tailored ways. These companies recognize the financial struggles of the post-Baby Boomer demographic. As such, they are compiling new owner agreements like rent-to-own schemes. Is this a fancy expression for buying a home? What are the discrepancies? What are your equity and taxability options with a rent-to-own hybrid mortgage plan? 

Options with timeshare leasing private properties

In terms of rent vs. buy economic lines often get blurred, but renting property rarely accommodates ventures like timesharing. With the popularity of services like Airbnb, people of a moderate income bracket now have scaling opportunities in timeshare and hospitality service. What does this do for the property value? 

Subletting rental share options

This is not to say the housing market isn’t open for pockets of interest for renters to lease the property they share. Rent-to-own schemes, property management agreements, etc. make for more economic options that don’t put heavy pressure on buying the property outright. 

The downside in this situation is the fine print. Sometimes law enforcement may see these types of agreements as “squatter” situations. In this case, you will need to consult your lawyer for the proper legal confines you can operate in. Renting property you only own partial shares in could come with litigation if not handled to the T by the book. 

Equity from rent-to-own subletting

As the options become tailored, the lines can blur a bit. This is why you need to know all the benefits of a good deal. How does your rent-to-own scheme set you up for equity if you opt to sublet the property? 

Ethical subletting to hospitality 3rd party 

Want to cash in on the popularity of hospitality services like Airbnb? Maybe you don’t have the funds to buy a condo to rent out like this. Does your lease agreement allow you to rent to AirBnB customers? 

Ethical subletting and property value increases

If done correctly, subletting can be lucrative. What does it do for property values? Is there a way that subletting within legal binds contributes to the property value of your rental property and thereby decreases your cost obligation? 

Notes on subletting legalese

You must take note that subletting social housing is illegal, punishable by eviction, fines, and prison. Likewise, subletting outside of local zoning policies and lease agreements, or without landlord permission, can be retaliated with eviction and fines. 

Why you should consult a bank

You may have guessed by now, whether you rent or buy property, you have some economic options that can turn into financial venture prospects. This poses a valid reason why you should have a solid banking service in place. Your banking professionals will offer educated opinions on financial stakes that you can take to get the most out of your housing agreement. They can also provide financial services to handle every transaction made with the smoothest process possible. 

The Seacoast Solution 

In conclusion, whether you rent or buy, financial advice will save you more money in the long-term game. To learn more, stop by your local branch today or contact us here. We’ll be able to talk about some specifics and give you a good idea of what you can expect from the process.

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