Assuming you are in a financial position to own a home, when does renting make more sense? Renting provides lack of responsibility and increased freedom. Some examples: the burden of maintenance is largely assumed by the landlord and moving is always an option (although prematurely breaking a lease agreement forfeits your security deposit). Therefore the most compelling reasons for renting, in my opinion, are the freedoms it provides from the burdens of owning a home.

In many instances, the rent payment is one-third to one-fourth the cost of the gross monthly payment for a home (loan payment, property taxes, and maintenance costs). Consequently the savings incurred (versus owning) make sense when other financial objectives are more important, such as saving for a home, paying off student loans, or supporting family members. What happens when life throws you a major curve ball? Consider the following life changes: divorce, new job, death of a spouse, and transition to a new city. Renting may provide the optimal platform for dealing with these situations.

Finally, buying a home requires years to build equity and sell at a profit. The time requirement is often between 4 to 7 years, the commitment needed to build enough equity to cover selling fees (which total around 8%) and make a return on investment.

Conclusion

Renting makes more sense when

1. You are not staying for long ( 2 years or less) or
2. Other priorities are superior to the responsibilities of home ownership

Basically you pay for predictability. The downside is that your payments build someone else’s equity (as opposed to your own).

Additional advantages of renting:

1. Amenities that are unaffordable as a buyer are accessible as a renter. Many of today’s high end apartment complexes offer pools, spas, fitness centers and recreation areas.
2. Large complexes provide a sense of community. (Unfortunately I must disagree. My memories of UCLA apartments are of filth, dilapidated buildings and sleepless nights).
3. A long lease agreement (1-2 years) provides short term stability. Despite the fluctuation of housing and oil prices, rental costs remain fixed.
4. The price of entry is small. Just 2 months rent give the right to occupy a space.
5. The option to move is always available. Whereas breaking a lease agreement prematurely may cost $5,000 (the price of the security deposit), selling at the wrong time may cost $50,000 or more (if the home is sold less than the purchase price).

The Power of Appreciation
First, its important to understand the power of appreciation. Between 1972 and 2002, the US Department of Housing annd Urban Development data show that median home prices appreciated at an annual rate of 6.1% Why?

1. First, general inflation drives up the replacement cost of housing (construction material and labor) and therefore the value of real estate.
2. Second, as the population increases, so does the demand for housing.
3. The power of supply and demand is further compounded when you consider the uniqueness of our area – the Bay is highly desirable, and there is no new space to build.

Now consider the law of compounding. If a property appreciates at an annual rate of only 3% (low appreciation) for five years, then it appreciates 16% overall.

The Power of Leverage on Rate of Return
6.1 percent appreciation may not seem like a lot, but that figure is deceiving when you consider rate of return on investment verus rate of return on price. Consider the following example:

With a financing today, a mortgage gives buyers the benefit of appreciation on the full value of the home while only investing a small portion of that value. Consequently the rates of return on initial money invested are as follows:

• 30.5% with 20% down and 6.1% appreciation in one year
• 61.0% with 10% down and 6.1% appreciation in one year
• 172.3% with 20% down and 16% appreciation over five years

The Power of Deduction on Taxable Income
Tax law allows various deductions for the expenses of owning property, such as interest paid towards a mortgage and property taxes. The ramifications are significant for someone with a sizable income. Consider the impact of owning a $500,000 home on a $100,000 income:

In our example, owning a $500,000 home provides $14,525 in annual tax savings. Put the money into a high-interest savings account and use it to reduce your monthly payment by $1210 a month.

Additionally, there are many unquantifiable reasons why owning a home is a good thing. For example, it feels amazing coming home to and awaking in a home that is yours. Moreover building that sense of home is an enjoyable and satisfying experience. It takes years to imprint your personal touch through painting, remodeling, landscaping and furniture placement.

Next week we continue the series with a look at reasons why renting makes more sense.

The majority of my past buyers, who purchased real estate in Mount Carmel, did so because of the area’s charming architecture and lot sizes — 7500 square foot lots are common. Styles include Craftsmen homes from the early century, Spanish bungalows from the 20s and 30s, and ranchers from the 50s. The homes are well constructed; in fact most were built when a two-by-four was actually two by four inches. Overtime many of the original 2/1s and 3/1s were converted to 3/2s, which brings my only complaint: oddly configured home additions. In one house, the master bedroom was accessible only by way of the toilet.

Perfect for Move-Up Buyers
With the following considered, Mount Carmel is an ideal fit for buyers looking to upgrade aesthetics, home size or neighborhood.

• Affordability - Commonly Mount Carmel homes are priced 15% less than comparable ones in White Oaks of San Carlos, 20% less than comparable ones in the Willows of Menlo Park.
• Good Public Schools - John Gill (K-5), Clifford (K-8), North Star (3-8), McKinley (6-8). Start with Redwood City’s boundary map and use Great Schools for ratings, scores and reviews.
• Green Space – Stafford park on Hopkins, Dove Beeger park on Whipple, play space at John Gill and Clifford schools, sport fields at Sequoia High School and Red Morton Community Park.
• Convenient Commuting – Farm Hill gives access to 280, Whipple to 101. Caltrain is close.
• Strong Community – the summer provides many citywide events.

Suggested Drive
To get a quick sense of Mount Carmel, take Whipple west from 101. The neighborhood streets begin just west of El Camino and ascend in alphabetical order, from Arch to Birch to Clinton and so on. Start paying close attention to the homes after Duane St. Turn left on King St. At the end of the first block, you see Stafford Park, a favorite picnic spot. From here I suggest either stopping to walk the streets or continuing on to the downtown (approximately Middlefield and Broadway). For those who make the drive, please comment with your thoughts.