If you are not yet a homeowner, or are wondering whether selling your home and renting might be beneficial to you, this section will be particularly helpful. The following quiz is designed to help you decide whether to rent or to buy a home.
1. Has the price of housing in your area increased 25% or more in the past five years?
If it has, score five points.
2. Do you plan to move to another area within five years?
If so, score one point.
3. Can you obtain enough money for a down payment and closing expenses to reach at least 10% of the price of a typical home in your area?
If you can, score three points.
4. Are you willing to put in the time and energy to mow the grass, repair the plumbing, put up the storm windows, and other similar homeowner chores? If you are, score three points.
5. Do you expect to be in the 15% or greater tax bracket this year? *
If yes, score one point.
6. Did you contribute at least 10% of your income this year to tax-deferred savings plans such as 401Ks and Keoghs to compensate for the lack of a mortgage deduction? *
If yes, score three points.
7. Is it difficult to find attractive, inexpensive rental units in your area?
If yes, score three points.
8. Is your credit good enough to allow you to borrow $20,000 or more without using a house as collateral?
If yes, score five points.
9. Is your combined yearly income more than 35% of the purchase price of the typical home in your area?
If yes, score three points.
Add up all your points: _______________
If your score totaled 20 or more, you should seriously consider purchasing a primary residence. If you scored 13 or less, you might need to plan carefully in order to purchase a home.
The appreciation of both housing and investments is not guaranteed. The figures placed in this exercise are purely for the purpose of illustrating the potential differences between renting and buying. Your real estate professional can help you determine the mortgage rate, principal and interest, annual investment and real estate taxes.
Your quiz score may be low or high, but it doesn’t tell the whole story. Using the worksheet below, compare the costs and benefits over time of both renting and buying.
1) Annual Income ____________________________
2) Price of Dwelling ____________________________
3) Down Payment ____________________________
4) Mortgage ____________________________
5) Annual Expenses RENT / BUY
6) Tax Deductions and...
- Subtotal ________________________
- Tax Rate ______________________________
- Tax Savings ___________________________
7) Annual Cost of Housing after Tax Savings _________
Total Annual Cost of Housing ________________
COMPARATIVE ANALYSIS CASH LAYOUT After Five Years
COMPARATIVE ANALYSIS CASH LAYOUT After Ten Years
APPRECIATION After Five Years
APPRECIATION After Ten Years
Whether you are renting or buying, you might find it helpful to look at your housing needs and wants before considering any of your Real Estate options.
Housing Needs & Wants
1) What I like best about my present home:
2) What I like least about my present home:
(CHECK ALL THAT APPLY)
I/We need more living space
I/We want more bedrooms
I/We want more bathrooms
I/We need a larger kitchen
I/We want to upgrade our lifestyle
I/We like our community
The schools are good here
I/We spend a lot of time at home
This town is very convenient
The neighborhood is going down
I/We would like a larger yard
I/We would like a pool
My/Our family is nearby
I/We would like more storage
I/We would like more appreciation
It is important to stay in this town
I/We spend little time at home
I/We pay way too much in taxes
I/We are concerned about the schools
My/Our children are small
My/Our children are grown
Over the years, millions of individuals and families have benefited both quantitatively and qualitatively by moving up.
For most people, moving up means purchasing a home which is larger and more expensive than their present home, and historically, this method of building net worth is extremely effective.
Moving up, however, can also mean purchasing a home in the same price range, perhaps in the same community, and getting many more of the features you want in a home. Another way to move up in the same price range is to purchase a home in an area where appreciation is higher than where you live now.
Homeownership is the last bastion of tax relief for many individuals and people sometimes move up for the tax advantages alone.
Demographic studies show that people are moving more often than in the past. The dynamics of many areas are essentially “move up” market dynamics.
The decision to move up is highly personal. Job transfers and corporate relocations may force the issue for some, but most people decide to move up only after carefully weighing the pros and cons as well as becoming knowledgeable about the current real estate market.
This Real Estate Planning Guide SM was designed to help homeowners evaluate their real estate options in all market conditions.
Although many people, in virtually all markets, move up every year, thousands more regret not taking advantage of past real estate opportunities.
Perhaps you’ve heard people say, “We could have bought that property when it cost half as much.” But they did not. Why didn’t they? One reason why people don’t take advantage of opportunities which arise is that they are not fully aware of how such purchases can be accomplished. Another reason is that the benefits of doing so are unclear.
This Real Estate Planning Guide SM was created to help you examine the positive and negative implications of a real estate purchase and to help you plan to be able to take advantage of real estate opportunities when they arise. Your real estate professional will help you by providing accurate and timely market information.