Saturday, March 27, 2010

BUYING: Should you buy or rent?

The soft real estate market and soon-to-expire tax credit may tempt you to commit to a home purchase. But does it make practical and financial sense? Here’s what to weigh.

Costs before receiving keys If you buy: First comes a deposit, home inspection, and appraisal. Then, at closing, it can feel as if you’re forking over all your savings: There’s the down payment, first mortgage payment, and fees for the attorney, title search, and document preparation.

If you rent: Landlords typically ask for a $25 to $100 application and credit check fee, as well as a security deposit. If you use a broker, add her fee. But Hammond Real Estate rental broker Deb Cantrell says, “Every fee is negotiated right now, or the cost of the apartment is.”

Financial risks If you buy: The term “underwater” strikes fear in anyone contemplating a purchase. The problem of owing more than your property is worth can be minimized if you work with a reputable real estate agent, lender, and appraiser who really know the area and make a sizable down payment, says Coldwell Banker realtor Kendall Luce.

If you rent: No tenant likes the words “rent increase.” Even worse is the phrase “This property is being sold.” Either situation may force you to move. Searching for a new place on shorter-than-normal notice usually costs extra. And finding a new place year after year is also tough on the wallet.

Location If you buy: Sometimes buyers must choose a less desirable location to meet their budget. “If location is your primary goal, then you’ll have to compromise on some of your wish list,” says Hammond Real Estate vice president Carol Kelly. “You might end up with a smaller place than you originally wanted.” Or a home that needs work.

If you rent: With less cash demanded upfront, you often can afford to rent in a pricier neighborhood than where you can buy. And you might be able to rent a larger property in that pricier neighborhood.

Customization If you buy: You can always change decor, build additions, upgrade appliances -- as much as your pocketbook allows.

If you rent: What you see is what you rent. Sometimes you need permission for every nail hammered into a wall, never mind installing a window air conditioner.

Ongoing expenses If you buy: Remember the movie The Money Pit, in which a mansion crumbles as repair costs mount? From the cataclysmic (an unstable foundation) to the merely annoying (clogged drains), you shoulder the unpredictable costs of upkeep. Add regular bills for utilities, insurance, property taxes, and, if applicable, condo dues.

If you rent: Many leases cover heat and hot water; some might cover other expenses, especially if the landlord is eager to find tenants. But a tough economy doesn’t mean anything goes, so expect landlords to inspect closely the property condition on move-out day and charge for the smallest repairs.

Mobility If you buy: If a divorce, job transfer, or other life change necessitates a move, it can be difficult to unload your property quickly, especially if you can’t afford to price your home competitively.

If you rent: Just pack up and leave when your lease expires. But beware that moving out early can be costly. However, Cantrell says you may be surprised to find flexible landlords during these tough times.

Return on investment If you buy: There are no guarantees, but lower home prices increase your odds of building equity. The longer you stay, the better the odds. Tax deductions are another bonus. But realtors caution that, despite the soft market, deals on quality properties in good locations are scarce.

If you rent: Rental payments are often lower than monthly homeownership costs, and if you wisely invest the difference, as well as invest the down-payment money you aren’t using, you can make a good return.

Shira Springer Boston Globe March 14, 2010

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