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To Rent or To Buy…It’s Elementary My Dear Watson

Posted by mjdadmin Estate Planning Real Estate
To Rent or To Buy…It’s Elementary My Dear Watson

Today’s housing market has more renters than ever. The City of Chicago has 2,720,556 residents, 54% of those are renters, with occupancy being over 96.3%. Almost 60% of renters have incomes over $75,000.00 per year. The highest demand for renters are young, high-income workers who make between $74,000.00- $123,000.00. There has been a tremendous amount of new construction in Chicago’s downtown, with 8,400 new apartments built or in the midst of being built, in order to meet the growing demands of renters in the last 2 years, mostly among the Millennials.   Another 5,000 units are expected to become available in 2018, which could cause an oversaturation. Rentals have been on the rise for the past 10 years, but is it really the best option? I have researched this issue and found that the overall best option in today’s market is to buy, with some exceptions.

The surge in renters over the past 10 years throughout the nation has been driving rental rates up. With continued demand, prices are expected to keep climbing, and renters will continue to have trouble finding affordable rents.

The average rent in Chicago is 4.8% higher than it was a year ago.

Homeowners only account for 63.5% of our nations population, the lowest it’s been since 1967. But renting right now is really not a good choice financially unless you have no choice, i.e. bad credit; only in need temporary housing, etc. Although you need a down payment to buy as opposed to a rental deposit, it’s worth it in the long run. Lenders also have many programs where you are not required to put the standard 20% down. There are many loans that offer 5% down, first time homebuyer programs, FHA or VA programs that allow for lower down payments, and many more. But of course you should always put down as much as you can so that your monthly mortgage payments are lower. Also, you are required to pay PMI (private mortgage insurance) unless you put 20% down.

According to Trulia, for households putting down 20%, with plans to stay at least seven years, buying is on average 37.7% cheaper than renting. This is true in over 100 US metropolitan areas.   If you rent, you are likely to experience an unpredictable increase in rental rates, as opposed to a mortgage, where it’s a fixed rate.

One of the biggest benefits to buying a home is the ability to build equity over time, equity that you can use later for whatever you wish (retirement, another home, etc.) Equity is like forcing yourself to save money if you are the type of person who has a hard time actually putting money away for the future. On the other hand, monthly rental payments are like throwing money out the window. You never see it again, nor any benefits from it.

Another huge benefit of being a homeowner is the tax break. The interest that you pay on your home is tax-deductible. The property tax that you pay is tax-deductible. The PMI (private mortgage insurance) that you pay is tax-deductible, the points that you paid when you closed is tax-deductible. Another huge tax benefit comes when you sell your home. If you lived in the home 2 out of the past 5 years before selling, you don’t have to pay the 15% capital gains tax on your profit.

A recent Gallup poll of people throughout the country showed renters in every income level are far more worried than homeowners about paying for their housing. Nationally, about 49 percent of renters are afraid they won’t be able to handle their housing costs. That’s about twice the number of homeowners with concerns. This is due to the high demand for rentals and the rising rates.

As stated in my February article, mortgage rates are low right now, but expected to slowly rise, so now is the time to buy. Spring is right around the corner, and listings will be popping up all over.

So to all of you renters out there, I get it. If you just don’t want to deal with the hassle of being a homeowner (fixing things, replacing high ticket items, etc.), I hope this article has demonstrated that it’s really well worth it in the long run. You can always sell if you can’t hack it. But remember, your lease is unpredictable, the apartments are small, the prices are high, and there’s always someone in line right behind you willing to pay the increased rates that your landlord is demanding.

Have a great month and hey…be careful out there!

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