The argument of buying vs. renting is still a big topic for many, but it’s really a no-brainer. Buying is the winner hands down in this perennial debate. It’s no contest for these reasons:
• Buying gives you huge tax advantages
• Buying means a big resale value down the road
• Buying improves your credit rating
• Buying is an investment in the future
The bottom line is that buying a home is more affordable than renting. Rents are consistently rising making it harder for many renters to save the money they need to use as a possible down payment on a home. At the same time, interest rates are dropping making monthly mortgage payments more affordable for those that qualify.
It’s an easy formula to follow if you’re thinking about buying. Rents are consistently rising while mortgage payments continue to fall in real terms. What many fail to realize is that real estate properties go on sale at from time to time and now is one of those times. Real estate goes on sale about every 15 for about four to five years at a time, giving buyers a chance buy a home at great prices.
First time buyers can take advantage of record low interest rates from local banks or they can apply for a Federal Housing Administration loan, that are now around 4.0 percent. Unlike loans from private banks, you don’t need great credit. As long as you have decent credit, it will suffice. FHA loans will allow you take out a loan with a down payment as low as 3.5 percent.
Regardless, if you do qualify for a loan, there are some key rules to follow if you plan to buy a home. Among them are:
• Manage your expectations and don’t expect too much from your first purchase
• Be sure to be well capitalized
• Commit to be in the home for the long haul
Don’t expect to buy a home and then expect to sell the property in two years for double the price. Things usually don’t work out that way. If your goal is to find an affordable home where you will be comfortable then that’s a natural expectation. But if your goal is to make a financial killing on your investment, then that’s asking for problems.
Being well capitalized is especially important if you’re a first time home buyer. There are some excellent properties out there that need some work and having the funding to do it is key for any homebuyer. This is especially true if you want to rehab a property and make major repairs.
By committing yourself to the property for the long haul, you also increase the value of your investment as time goes on. By selling too quickly, you lose out on huge potential revenue as the property’s value rises.
As you move forward in your purchase, you’ll also be able to take advantage of your home purchase through tax deductions. Eventually, you’ll see that your monthly expenses in your new home are far lower than the monthly expenses had you remained a renter.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica. He has more than 20 years experience in commercial and residential property investments and financial counseling.