Pros and cons of renting vs. buying a home

At some point in your life, you will ask yourself the question, “Is it better to rent or to buy?” and the answer is almost always: “It depends on the state of housing and your circumstances.”After 2008, when the U.S. economy bottomed out and the housing bubble burst, the standard belief that it’s always better to own, rather than rent, was turned on its head. When home values plummeted and many people found they were upside-down in their mortgages (owed more than the home was worth), the American dream of owning was shattered and renting was suddenly the desired living style. That’s why the “Rent vs. Buy” question requires people to examine all the elements of the decision, since where we live is an emotional decision as well as an economic one. Here’s one way to break down the issues:Pros of Renting Lower cost upfront – As a renter, you will be required to pay first and last month’s rent and perhaps a security deposit for a pet. If you buy, you will be required to pay a hefty down payment, plus costs for the home inspection, closing costs and other potential items such as a survey and sewer scope. It’s a difference of a few thousand dollars if you rent compared with tens or even hundreds of thousands of dollars if you buy. Freedom and flexibility – If you are new to the area, you can rent and use this time to check out neighborhoods to see where you might possibly want to buy. By renting you can test an area without committing to it. Invest money elsewhere – You can take money that would normally be spent on a down payment and house costs and invest in the stock market or other investment opportunities that could get a better return on value, depending on location.Uncertainty in your career -- If you think you might need to move in the near future, or are mulling job changes where you could be relocated elsewhere in the country, renting affords the freedom to come and go as needed.Uncertainty in income – If you expect a pay hike or pay cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.Time to establish credit – Got bad credit? By creating a history of on-time rental payments, it can help you build good credit that you would need to qualify for a mortgage.No maintenance – When the pipe leaks under the sink, you don't head to your nearest hardware store, you head for the telephone and call the landlord. Incidental expenses – Occasionally, the landlord might pick up costs for utilities such as water, sewer, garbage, and in some cases heat and hot water as well.(Photo: Images_of_Money / Flickr)But there are downsides, too:– You may have no control over the fluctuation of your rent.– You might be limited in decorating the home or apartment.– You won’t build equity in your home.– You are subject to the landlord’s decisions.Pros of BuyingBuild equity – When you pay rent, you don't own anything. When you pay a mortgage, you increase your degree of ownership in your home with every payment. Also, you can borrow against your ownership (or equity) in the home to pay for major purchases and you can refinance your home at favorable rates to help fund major purchases.Submit tax deductions – You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.Have creative control – You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Like the color mango? Go ahead and paint. Wish you had another room? Go ahead and add one.Maintenance choices – If you own a home, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a rental, you are at the mercy of the landlord when repairs are made and how.Pride of ownership – It might not make sense for everyone, but having a home you own is still the ultimate American Dream.While a home can be a good investment – and let's face it, you have to live somewhere – many financial experts caution against purchasing a home simply as an investment. Also, keep in mind that the dynamics of real estate markets across the U.S. vary greatly. This reality requires each consumer to be fairly sophisticated not only in terms of their own finances, but about all the data for the market in which they are looking. Zillow – Thu, May 31, 2012 2:54 PM EDT

Vacation Income

In January, many folks look to make some extra income and focus on a goal other than losing weight or reducing their carbon footprint.Right after the turn of the New Year, some homeowners start preparing their homes to rent out as vacation rentals for the spring and summer.“Nowadays because of the economy, everybody is looking for a way to capture a new revenue stream,” says Paul Aubin, president and owner of Newport Beach (Calif.) Vacation Properties. “They already have an asset.”To attract vacationers who prefer homes to hotel rooms, homeowners can work with a vacation rental agency or market properties themselves through websites such as VRBO.com or ITrip.net.Barbara O’Hara Hamilton, a Southern California real estate broker, regularly rents out two properties of her own as vacation homes. She said screening prospective renters has left her with no complaints.“I’ve never had any problems,” Hamilton says. “Nothing broken, nothing stolen. People are usually very respectful.”Hamilton started using her first property — an upper unit in a duplex in Corona del Mar, in the Newport Beach area — as a vacation rental after she experienced trouble with a full-time tenant who rented annually, she said. Now she markets the unit as a weekly vacation property. Hamilton said she’s making more income, upwards of $6,800 on a fully booked month, much more than the $1,600 per month she netted when the property rented annually to one person. The business has proved so lucrative for Hamilton that she is now renting out a house in Dana Point, Calif., as a second investment property.“It has just been a win-win,” she said.About 40 percent of vacationers who rent Hamilton’s property are visitors from other countries. Since the rental agency handles the property, it is turned over and cleaned in between renters while Hamilton collects her income.Homeowners can potentially make more extra income in a shorter period of time if they rent their home out during peak seasons.Aubin says the return is “between 20 percent and 30 percent more annually with a vacation rental than if you were to rent it out to one person the entire year.” Homeowners often can net more income from weekly vacation rentals than monthly ones, he said.“The myths out there are if you go with weekly rentals, your house will be destroyed,” he says. “That’s not the case.”Aubin’s company screens incoming rental inquiries, checking out potential renters to give homeowners peace of mind that their home won’t be mishandled.He says his company typically gets a rush of people looking to rent out their properties in early January. With the spring break market starting in late March and lasting through the end of April, homeowners need to start now to get homes listed and ready to rent to vacation renters.“If you’re a homeowner and you’re trying to prepare your home and market it for those time periods, you really need to get it up on the websites in January,” Aubin says.—Establish a possible financial forecast. How many weeks out of the year will it be rented out and at what rate?—Apply for a business license with the city.—De-personalize the home and remove clutter.—Remove personal items and confidential files and papers.—Ensure the home has Wi-Fi internet access.—Stock the kitchen with the appropriate tools and cookware; stock bedrooms with an extra set of linens.—Remove medications and personal toiletries from the bathroom; provide beach towels.—Prepare an instruction sheet for home electronics.—Inform neighbors that the property will be rented out for a period of time.Cleanliness and amenities — modern bathrooms, king-sized beds, wireless Internet access and hardwood floors — increase rental rates, Aubin says.“The expectation isn’t too different than when people are buying a house,” he says.