Rent Or Buy A Home?
by Ruby Bayan
My partner and I live in an apartment. We pay a monthly rent for the use of a semi-furnished unit. As residents of the apartment complex we have free access to the swimming pool, Jacuzzi, fitness gym, indoor racquetball courts, basketball, volleyball, and tennis courts, the lanai, and the lake.
We get complimentary breakfasts every weekend, in a clubhouse equipped with a den and a billiard table. Every now and then we're invited to parties and poolside movies sponsored by the property managers. Anytime anything in our unit acts up or breaks down, we call the office and within the day, the problem gets fixed. The surroundings are always clean, the landscape professionally trimmed, watered, and fertilized. For my partner and me, this is the life.
The American Dream
For other people, however, owning a home is the best and only way to go. Home ownership is the American Dream -- the key to wealth in the American economy. Aside from its potential financial rewards, it boosts a person's self-esteem and pride, and promotes peace of mind and a better quality of life.
People who choose to buy rather than rent appreciate being spared from having to deal with irresponsible landlords and noisy next-unit neighbors. Unlike rental dwellers, homeowners have private garages, as well as spacious backyards where they can frolic freely and grow flowers and vegetables as they please.
As owners of single-family homes, they can throw non-stop parties and put up psychedelic wallpaper and other innovative renovations without having to answer to a Property Manager. Pet lovers can even have as many animals as they want, freely roaming in the courtyard.
Home ownership is, indeed, extremely appealing. However, not everyone is buying the notion.
According to the Harvard University's Joint Center for Housing Studies, in its State of the Nation's Housing 2000 report, homeowners gain unprecedented increases in wealth on a nominal front-end investment, a substantial windfall that renters never enjoy.
But according to the National Multi Housing Council, these financial rewards come true only if the equity values of the real estate do appreciate. Like any other investment, real estate values are vulnerable to downturns and homeowners could actually end up losing a lot of money.
Aside from the investment risk, homeowners are faced with "hidden costs" -- expenses that they incur in the process of buying, maintaining, and reselling their property. These ownership costs include property taxes, inspection fees, broker's commissions, title insurance, escrow fees, transfer taxes, prepaid interest, points and appraisal fees, all on top of the mortgage payments, property insurance, and home maintenance and repair expenses.
While renters "give away" their money to their landowners, homeowners "lose" their money to lender banks and the IRS.
One argument in favor of renting is the versatility of relocation. Renters can pack up and leave with a 60-day notice; homeowners can't leave until the house is sold. And if relocation is due to having lost a job due to recession, chances are, the house's resale value will also be adversely affected.
The cost of selling a house and acquiring a new one can be disheartening if it has to be amortized over a short period of time due to a job-related relocation. One-time buy-and-sell transaction costs only become reasonable when they can be annualized over at least 20 years. Therefore, people who are not positive about long-term residency are better off renting rather than owning.
A Decision to Make
While I was writing this article, I asked my partner how he feels about the American Dream of owning a home. We're both comfortable with the amenities and low-maintenance lifestyle in our apartment complex, so I was amused when he answered, "If I had the money to invest, I'd buy a home. I'll pay a gardener to maintain the yard, a housekeeper to come in every week, and I'll hire professionals to fix any problems with the plumbing, wiring, and home appliances. If I had the money, that is."
So, I guess down the road my partner and I will want to sit down and consider investing in a home. It will take a lot of pencil pushing and maybe a financial adviser to help us decide. In the meantime, we'll take pleasure in the comforts of our rental unit. Tomorrow morning, we'll workout in the gym, enjoy the complimentary breakfast, and then maybe hang out by the pool. Why not?
[First published at New2USA.com, 2000]