By: Karen Laurence Special to the Boca and Delray newspapers
The rental situation in South Florida is the worst in the Country. Two thirds of the renters are paying more than 30 percent of their income for just rent, according to The Joint Centers for Housing studies at Harvard University. Some of these figures go as high as 50 percent of their income. South Florida has the highest amount of these plagued renters over the past four years. This is just not sustainable from a quality of life perspective or an economic perspective. This causes a lot of stress, bankruptcy, and foreclosures.
Wouldn’t it be wonderful if these were not the figures for the homeowners? More than a third are struggling when it comes to their mortgages and related expenses. 25 percent of the income used to be the rule for a mortgage. This was before the age of electronics. Now a cable bill, with some premium channels, add internet and phone, and it can approach $300 a month. This necessity (to most), additionally having food, car, elect, etc. expenses shows both groups as overextended. The tri-county region has so many homes being rented that is it causing a shortage of inventory for homes to buy. Investors are buying homes that are sometimes in need of repair, fixing them up, and keeping them to produce a regular income.
Buy or rent?
Cost comparisons on renting vs. buying vary significantly around the country, depending on the local real estate values, and the supply of rental housing. If the supply of houses to rent is small, it can push up the rents to a point where buying is the better move. In South Florida, the difference between the two, what it costs to rent vs what it costs to buy, is not as great as in other areas in the country.
Buying instead of renting needs to make sense financially. It is a much longer long term commitment that renting. You must have a down payment, cash reserves (which are used in case you lose your job and have no money coming in), qualify for a mortgage and be prepared to make the repairs and renovations that will be necessary to maintain the value of your home. You lock in your mortgage rate for a longer period, typically 15 to 30 years, where the rent can rise at the end of the lease. The values of home can fall or rise over time and you run the risk of not getting back every dollar that you invested as a home improvement at the time of sale. Over the years, it takes a lot of appreciation of home value to get back the outlaid costs of closing, buying and selling. When the potential home owner jumps from a rental to a purchase, it will most likely be to save on the rental, which some akin to throwing money out the window, and pay down the mortgage, thus having the cost of living absorbed into the profit when selling the home. They also feel that they are living in a nicer abode than a rental or can renovate to increase the equity in the home.
Renting makes sense for those who are required to relocate for their careers. Some career minded individuals will rent their house out and relocate, not wanting to give up their home, unless they are sure that it is a more permanent move. Then there may be the cost of a property manager involved, you still have repairs on the home to make, hence it may be better to rent until you are sure of how long you will be in the new location. Though there are usually a first month and a last month security in renting, it is usually less than a down payment for a home. When renting, the improvements and changes that you make to a rented property stay with the property. The landlord is usually responsible for repairs to the unit. That is a critical point. The concern you have, after becoming settled and familiar with your surroundings, is that at the next lease signing, the rent will increase, and you may be forced to move.
Whether you are buying renting, keep these key points in mind.
- Do not get more house than you can afford.
- What are other houses renting for in the area? Could you leave your house, relocate, and still pay the mortgage through the rental?
- Resist the All American dream of owning a house until you are sure you can afford it. Remember the 25% for housing income rule. For either renting or buying.
- Be realistic, use a calculator and figure all expenses on the high side in your budget.
Karen Laurence is a sales associate with The Keyes Company. She is a Technical Real Estate Instructor, Real Estate Agent and Certified Luxury Agent. 516-524-3953.