That is the question. Here are 10 factors to consider in the lease versus own dilemma
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| Jon Chester says building equity is one of the best reasons to purchase a home instead of renting. (Photo by Steven Lindsey) |
When it’s time to change residences, there are many factors to consider. Of course, there’s always the mandate of “location, location, location,” but there is also a host of other considerations: High-rise penthouse or single-family home? City or suburbia? Lease or own? For commitment-phobes, the answer to the last question is obvious, but for everyone else the path may not be so clear.
To help remove some of the stress of making that all-important decision, Dallas-area realty and finance experts weighed in to present the benefits of both leasing versus buying.
FIVE REASONS TO LEASE
1. Keep up with the Jerry Joneses. For those who are all about appearances (and you know who you are), leasing is the way to fit into the “it” neighborhood that otherwise is out of your price range. You can rub elbows with the rich and famous at the local grocery store, drive your high-end import (leased, natch) to Pilates and still have money left over for, oh, let’s say food.
2. Try before you buy. If not mandated by your job or other necessities for moving, you might just want to check out a new neighborhood or city before settling in for good.
“If a client is unsure of where they really want to live or what to buy, I tell them it would be better to lease for six months to get acquainted with the city before purchasing,” says Joey Miert-schin, a Realtor and property manager with Prudential Texas Properties and Starcrest Prop-erties.
According to Miertschin, leasing is great for anyone in a new job who’s not sure that it will last long-term. Leasing alleviates some of the stress of a 30-year mortgage payment and a large debt that could be difficult to unload if things don’t work out.
3. Save now to own later. Buying can require a sizeable down payment that some nesters don’t yet have. If you’re looking to move out of your apartment and into something bigger, leasing can also help you save money. “Many of my clients want to lease first so they can save for down payments,” says Keith Yonick, also of Prudential. And don’t lease the most expensive property you can find or you’ll never reach your goal.
4. Repair your credit while leasing. Bad financial decisions in your past don’t have to foreclose home ownership entirely. “I would encourage anyone who is unable to purchase due to financial reasons to rent the least expensive place they can in order to sock away the cash they’ll need and/or repair their credit,” says Susan Melnick, an agent with Virginia Cook Realtors. “A good loan officer will often walk them through this process and give them lots of direction on what to do to repair credit as well as direct them as to how much they’ll need for closing.”
Jon Chester, a CPA with Sterling’s Bookkeeping and Tax Service, advises eliminating all credit card debt if possible.
“And have a savings account that has at least the down payment and closing costs deposited. Show this for at least three months and make no major purchases. You need to reduce your monthly recurring expenses so it’s important to pay off revolving credit cards and keep them paid,” he says.
5. Don’t lift a finger. For some, owning is never appealing simply because of the ongoing maintenance and expenses. Homeowners have to deal with clogged toilets, rats in the attic and weed-pulling, all on their dime. For most leased properties, the landlord takes care of all those pesky problems.”Most clients like to lease because they will not have to deal with maintenance,” Yonick says.
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| TRY BEFORE YOU BUY: Joey Miertschin recommends that those moving to a new city lease before committing to buying a house. (Photo by Arnold Wayne Jones) |
FIVE REASONS TO OWN
1. Uncle Sam will love you. One top reason people purchase a home is the tax benefits. “For most it’s the ability to itemize your deductions,” according to Kevin Gardner, enrolled agent with Sterling’s.
The IRS standard deduction is $5,150 for single individuals, so “if you are single, don’t own property and give $5,000 to charity during the year, you would get no benefits since the standard deduction exceeds that amount. However, if you also pay $10,000 in interest and taxes on your home, your itemized deductions are now $15,000 and the difference [$9,850] is the “‘extra’ deduction you get for owning a home,” he explains.
2. Let them see you sweat. Many of the trendier parts of town are expensive for home purchases, but there are other ways to get a deal in desirable neighborhoods. There’s no incentive to put in that effort on a leased property, but one you own makes it worthwhile.
“There are still many good buys in all areas, [including] Oak Cliff, East Dallas, and Uptown, particularly if the buyer is willing to do some “‘sweat equity’ such as paint, or perhaps update a kitchen,” Melnick says.
3. Build real equity. “Why pay for the landlord’s trip to Hawaii?” Yonick asks. “Building equity is a good thing. The Dallas area is still under-valued and it is a great opportunity.”
“All things being equal, it costs the same money to own as to rent,” Gardner says. “However, you will gain equity by purchasing your home by either paying down principal on a loan and/or increased value of the property. There’s also the whole “‘American Dream’ of home ownership.”
4. A sound investment. For many, real estate is the most secure investment that, depending on the city, will always increase in value.
“I firmly believe, and have seen with my own eyes and personal experience, one of the surest ways to build wealth and reduce taxes is the purchase of your own home,” says Chester. He adds that home ownership, if you done correctly, will increase your net wealth over a period of years.
5. Peace of mind. Owning your own home, whether it’s a unit in a high-rise or that Wisteria Lane-worthy two-story house with the white picket fence, can just make you feel better and more secure knowing that you have something accruing in value. “Psychologically, owning your own home helps you feel a sense of accomplishment,” Chester says.
And you can paint the walls any color you like.
This article appeared in the Dallas Voice print edition, March 2, 2006.