Reader Question: I just turned 60 and own my two-bedroom, two-bathroom, two-car garage condo outright, and it’s worth about $140,000. Condos in my area sell fast. Many people think it’s a waste of money to rent when you can build equity in your house, especially if it’s paid for. I guess it depends on what you value. If a person just doesn’t want to be a homeowner any more (for any reason) and wants to rent an apartment, townhouse, etc., is there any disadvantage to this option?
Monty’s Answer: Home ownership is a solid symbol of our free enterprise system and can be one of our most significant financial opportunities. Homeownership is viewed as offering some income tax advantages and as a sign of stability and commitment. There is also prestige in homeownership because one must have demonstrated the ability to save money, have good credit and continued employment.
Is it for everyone?
Even with all of the positive images and impressions of a home, the fact is, homeownership is not for everyone. Besides all of the emotional considerations, there are many aspects of responsibility to evaluate. Current homeowners circumstances change. Growing older, retiring from the workforce, changes in family units or health and many more situations will cause us to seek alternatives. These changes require careful evaluation.
Here are the main advantages and disadvantages of home ownership. Consider each point, and perhaps even modify this list. Real estate consumers have their views of the pros and cons based on factors in their unique situations.
— The benefits of homeownership are: Community standing, potential for financial gain, tax incentives, family security and psychological.
— The constraints of homeownership are: Commitment, potential for economic loss, maintenance, repairs and improvements and extra time to manage.
When considering these points, ask yourself this question: Are the prices you paid in sacrifice and hard work worth the benefits and sense of accomplishment that your home offers?
Your home is not an investment
Buying real estate has been considered a sound investment in the past. After the 2008 meltdown, we discovered there are no guarantees of homes continually appreciating. It may be surprising to learn that before 2008, not every home increased in value. We all need a place to live and be comfortable and if it happens to appreciate, great.
Apartments are homes, too
A home is many different things to different people. It is often an extension of your personality and a representation of your individuality. It is a place where you can express your tastes, interests and other personal characteristics. It can also be an indication of success and pride. It is a place for privacy and to gather family and friends. You may not own it, but it is always “Home Sweet Home.”
Considerations in switching to a rental
Financial analysis — Income generated with your net sale proceeds. Determine your annual or monthly cost of home ownership such as utilities, HOA fees, interior repairs and maintenance, HOA special assessments, insurance, real estate taxes and other expenses.
Market rents — Check out what will you pay for a comparable apartment. Consider the size, access to your front door, parking, common areas, amenities you will use, and what is included or not in the rent.
Management practices — Will the landlord or management company be an improvement or a disappointment when compared to your current homeowners’ association? Stop and talk to other tenants when you view apartments.
Now, weigh the facts of your comparison against the reason you are considering making this change. If it costs $500 more to rent each month will that make a difference to you? Some people change locations for emotional reasons rather than what is logical. For example, if the reason is a noisy neighbor, you may get another one near your new abode. If you want to downsize from 1,300 square feet to 850 square feet, it may be a good time to evaluate options. It is not uncommon for people to switch from owning to renting or vice-versa, and after trying it, to go back the other way.
There is no denying…
One should not overlook the realities of home ownership. It takes an honest evaluation of your situation, lifestyle, and goals to determine if you should sell. For example, would refreshing your decor alter your thinking? Weigh the benefits against the risks and your conclusion should be an accurate one for you.
— Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Find him at DearMonty.com.