Buying Vs Renting A Condo, the Real Truth

If you are deciding whether you should buy a condo, or rent the condo, you only have to read this article to make a reasonable decision.

If you consider that renting a condo seems to be a lot easier than going through the buying process, the initial decision in this process is in relation to why do people even consider buying a condo, as opposed to continuing to rent for an extended period of time. Since the middle ot the 20th Century, home ownership in the US has never been less than 60%, nor has it been more than 70%. It is currently around 64%, which means that 36% of the population are not homeowners. There are logical reasons why this number is high, and unfortunately there are more reasons why this number may be higher in the future. Just think about it, have you ever thought that you really wonder how future generations are going to be able to afford owning a home. While the costs of home ownership seem to be spiraling upward, increasing the cost of living, and the wages in the US not keeping up with this spiral, it only seems logical that there are a significant portion of the population that seems to be left behind in  the home ownership arena.

Some of the reasons given why homeownership is declining, in adition to rising prices, are high student debt, stringent lending guidelines, economic factors, social factors, and the most important factor of personal reasons. If you are in the process making this decision, you will want to consider and evaluate the financial costs and expenses as well as the other benefits and burdens of buying versus renting a condo.

First, let's examine the up-front, and carrying costs of buying a Condo.

Up-Front costs: If you are buying a condo in South Florida, there are a lot of up-front costs, and some of them are not minor. From the time that you start looking for your dream condo, until the day that you show up at the closing table, you will have thse costs:

Deposit, which includes your original earnest deposit, and the balance of the cash due at closing, which is the difference between the sales price of the condo, and the amount that your lender is loaning you. Typically lenders will loan in the area of 75% - 80% of the purchase price, which means that your deposit will be between 20% and 25% of the price of the condo. For a condo of $300,000, this means that your deposit will be between $60,000 and $75,000.

Appraisal- this should be between $250 - $500

Inspection- this should be between $250 - $500

Attorneys fees

Title Insurance

Pre-Paid expenses for taxes and Insurance

Condo application fee

Lender fees, including points, credit report fees, recording fees, closing agent fees, and other fees

These above fees generall are about 2% - 4% of the loan amount.  

________________________________________________________________________________________________________________________________________                                                                              Recurring monthly Costs and Expenses: After you purchase your condo, instead of the rent you would be paying for an apartment, there are carring costs of the condo that you purchased.

These costs and expenses include the following:

Fix-up and repairs made to your condo

Furniture, household goods, and other furnishings that you decide to purchase. A study of homeowners vs renters revealed that the amount spent on these items for a purchaser of a home was likely to be 225% of the amount spent by a renter for a similar property, with the main reason given as the pride of homeownership. 

Loan Payments, including escrows for taxes. This may include Private Mortgage Insurance, depending on your loan amount. 

Condominium HOA fees

Utilities

Insurance

Ongoing maintenance of your condo

All of the above costs can be estimated, but until you actually experience the monthly outflow of expenses associated with owning a condo, your estimates are likely to be lower than expected.

Once you have estimated the costs of owning a condo, you need to consider the costs of renting a property. After you have these costs, and a lot may be almost the same whether you buy or rent, then you can do a comparison of what the total costs are for renting vs buying. 

There are several other things that you need to consider in evaluating the pros and cons of owning vs renting. It is almost certain that quality being similar, it is going to cost more, or at least your outlay of cash is going to be greater, by buying a condo. But there are other things that you need to consider, which include:

Appreciation- This is something that you should consider, but not depend upon, because there is no guarantee that prices will rise during the forseeable future.

Tax benefits- At least during the forseeable future there are federal tax benefits of owning a property, having to do with the deductability of interest and real estate taxes.

Security- As a homeowner, you have some control over what your expenses may be in the future, especially if you have insurance to cover losses. As a tenant, you are living subject to your Landlords ability to raise your rent on an annual basis. So if your Landlord decided that you need to move, for any reason, they may be allowed to terminate your lease, subjecting you to moving expenses, and increased rents at another location. I addition to being costly, this can be very time consuming.

If you are in a position to evaluate buying vs renting a condo, you will eventually realize that the biggest part of the decision relates to the social aspects, and some of the speculative areas of ownership. After all, if you knew that the prices of condos were going to rise at the average rate of 5% per year over the next 7 years, it would make the decision process a lot easier.  

If you have any questions about either buying or selling, please contact Denise Stewart at 866 783 6011 or denise@condo.net