In this opportunity, join us to compare the benefits, the pros and cons of this common decision in real estate: buy or rent your house.
If you decide to rent, at some point, you could find yourself in the situation of deciding to buy the property. That’s the next step after renting for a long time. In New York City, for example, properties are quite expensive but that is not the only reason why you decide to rent.
It is more about making a decision whether you buy your current residence or just simply use the money that you have saved so far and just simply invest it in your real estate portfolio so that way, it becomes something passive and that it starts paying it off by itself.
Let’s walk through the way where you have to do the analysis on your head. If your current rent studio in New York is $1,450, as an example. The mortgage for a place like that in a neighborhood with those prices would cost you at least $5,000, that’s how you have to do the analysis, $5,000 vs $1450. Now, keep in mind that when you rent, you have no equity whatsoever because you’re just paying for your right to live in a property, you are renting that space for 12 months or 24 months but at the end, once you are done with that lease, you have to move out or just simply choose to renew the lease and that’s if the landlord agrees to renew you that lease as well.
On the other hand, if you decide to purchase a property like that then, over time, what you will do is that you’re going to start gaining equity and that property. You start gaining equity, it’s going to cost you more money today but basically, you’re gaining more and more equity out of it which you could eventually use for other things like taking cash-out refi or doing a HELOC.
Rent Versus Mortgage Payment
Another item that we should consider is the maintenance rate. If you rent, you will not have to worry about shoveling the snow or simply having to cut out the grass or care for galvanizing the pipes in the winter, that way they don’t break because of the cold. You don’t have to worry about any of that in the case that you live in an apartment building.
Now, if you were to buy your own property, like a house, you will have to worry about all of that previous stuff. You will have to do all that maintenance which requires manual work or hiring somebody to take care of all of those expenses and at the same time, you will also invest money or have to spend money in order to afford the materials for that.
If you want to buy a condo or an apartment in New York City, then you will have to worry about items like the HOA fees (Homeowners Association) which means additional money that you are going to have to spend on top of the mortgage payment that you will have to incur already. That’s another thing.
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If, for example, your apartment is $1,450, all you have to do is to multiply that number by 12 and whatever resolved that is then you will have to do two to three times that amount, which means $17.400 a-year and then typically for landlords, what they require is that they want two or three times the income. If it’s three times, you have to make at least $52,000 a year in order to even qualify or to be considered for the lease and an apartment like this.
Buy or Rent your House: Other Options
Not all properties are as expensive as in New York City. There are other places that you could explore out there, other places where you can meet different cultures, meet new people and why not, it’s good to add another job experience into your resume.
A concerning element is the fact that if you lose your job, that could mean a bad thing because you have no control over what could happen in the market or in the future economy. We can be the best employees but if the economy goes down again, then you have to consider “what is it that I will have to worry about?” Then that will be the possibility of foreclosing on your home if you don’t have a job to be able to pay for your house.
If you don’t work that means you cannot afford to pay the mortgage and therefore, you can foreclose in it. Meanwhile, as a renter, if you lose your job, you would just simply walk out your lease. You could even face litigation and some issues with your credit.
In the event that you lose your job due to the economy but you still get some passive incomes, you could still sleep at night and not worry about paying for your mortgage. In the event that the person who’s renting your apartment loses its job, you have insurance for that and that insurance covers rental income. If your tenants lose their jobs and they have to move out, you will still have that rental income coming in because of the insurance that you should put in place at the beginning. Then on top of having the ability to still receive rental income, you would still get additional equity.
What to do with your Rental Income
With the rental income, you will:
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– Contribute more
– Pay more toward the mortgage
– Reinvest the money from that rental into the mortgage
– Gain enough equity to do a cash-out or a HELOC
– Expand and then buy another one
Basically, you would still get the best of both worlds. If you lose your job, there are options that could help you as an investor. If your tenants lose their jobs, there are also options for those cases.
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