The Clash: Should I Stay or Go?

Should I Buy or Should I Rent

Homebuyer Associates February 2010 E-Note

Homebuyer Associates www.homebuyerassociates.com
414.254.4129 homebuyeba@gmail.com

Michael D. Holloway/Seamus Holloway
Lynn Sarver/Paul Wollersheim

The Clash version of the real estate question – should I rent or should I own – was captured in their Combat Rock tune – “Should I stay or should I go?”

http://www.youtube.com/watch?v=0Ag8J2NMYmc

Much like the 3 chord Clash tune, the question of whether to rent or own is not complicated but the decision can be. As a young man I recall the freedom that renting afforded me. I also knew that I preferred controlling my environment, could use the tax advantages of ownership and that I’d build some equity through ownership. The latter point was important because when I was young I was not a good saver.

I know theoretically, from a purely financial point of view, a case can be made that if you save the difference between what it costs to rent and what it costs to own that you may be further ahead…but I knew I wouldn’t save the difference. Forced savings (ownership) to build equity is probably the first reason I wanted to own. I bought my first home at age 27. I own four properties today so it worked out ok for me.

With low prices, low mortgage rates and the tax credit, it is a good time to buy but it is fair to look at renting. I don’t believe everyone is meant to own a home. I do believe people should gather the information to determine which is best for them.

A good argument can be made for renting if you plan to move every 3 years, if you are unsure of your job prospects, if you are ambivalent about controlling your surroundings and most importantly if you can rent for much less than owning.

In either case it is not wise to be house/rent poor. I would describe anyone paying more than 34% of their income to rent or own as having a burdensome housing cost. The price to own ratio remains the best method to look at when deciding whether to own or rent. If the price ratio is significantly above the historical average of 15, renting is probably the better option. From my research of rental pricing and real estate sales Milwaukee is in the 14-16 range. The rent vs. ownership link is a good starting point for gathering information.

http://realestate.yahoo.com/calculators/rent_vs_own.html

At this writing the national vacancy rate is 8% and rents are down 3% from last year according a report by REIS, Inc. While rents are low (if you are renting you should be negotiating) rents can be a bit like timing the financial markets (can’t be done or is done by very, very few). As the economy returns, rents will rise which will affect the rent ratio and therein lies the market timing riddle as to when to buy.

I’d offer two bits of advice. If you are comfortable renting and have rented for a long period of time, you may be a renter. Stay renting. You are happy and it works.

If you decide to own a home, then the key is to buy a home that fits your needs. A home is a place to call your own, a place to live. A home is not a get rich quick scheme – it’s not even technically an “investment” unless you plan to rent it to produce income. Buy a home that doesn’t become a burden. Buy a home that fits.

As always, if you or someone you know wants to talk about housing we will be glad to do so. Maybe you want a clearer understanding of the rent ratio or a sense of what it takes to own.

Here is my suggestion. You buy the coffee and we’ll provide the best advice we can from our 24 years or experience. I figure if you buy the coffee you will know we are not trying to sell you something. We will provide insight into the largest financial move you will most likely ever make – you get information and we get a cup of Joe

Thanks for reading. I must go. The Clash are calling.

Thanks for reading,
Michael D. Holloway

Homebuyer Associates
414.254.4129
www.homebuyerassociates.com
homebuyeba@gmail.com
Michael D. Holloway/Seamus Holloway
Lynn Sarver/Paul Wollersheim