Doing the math
Andres Carbacho-Burgos, a Moody’s economist, said there’s little doubt that renting in South Florida was a better bet during the peak years of 2005 and 2006.
“What has happened since then is the housing prices have come down by a lot more than the costs to rent an apartment,” he said.
To illustrate that, Carbacho-Burgos looks to a price-rent ratio that considers the buy-versus-rent question in a more mathematical way. The ratio is calculated by taking the median cost to buy a home and dividing it by the annual cost to rent.
A price-rent ratio less than 20 is generally considered a sign that it is better to buy.
For example, if the annual rent on a three-bedroom, one bathroom home is $15,000, and a similar home is selling for $200,000, the rent ratio is 13, favoring buying as the better option.
According to Moody’s, the average price-rent ratio using apartment rents in 2006 in Palm Beach County peaked at 31 but was down to 18 in the first quarter of this year.
But that number isn’t perfect. Theoretically, the calculation should use home rental rates, which aren’t easily available in a uniform format for specific areas.
WINTER RATE SCHEDULE*
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EXTENDED STAY RATES
Tenants are protected by a 2009 federal law that allows them to stay in their units for 90 days after a foreclosure notice is posted, but they have other rights as well:
-Renters can insist on staying in their units until the end of their leases, except when the new owner of a single-family home wants to move in.
-They can require banks and their agents to put all communication in writing.
-They are not required to take cash incentives to move out before the law requires.
-Harassment, such as changing locks without a court order, entering the home without permission or shutting off utilities, is illegal.
Home owners who have been trying to sell their properties for a year or more might consider lease or a rent-to-own option.
A lease option agreement gives the tenant the option to buy at a predetermined price for a rent that is slightly higher than market. In a lease purchase, a buyer commits to buying the property. In exchange, the seller credits a percentage of each payment toward the purchase price.
Either arrangement is likely to attract serious renters who would like to buy the property if they can. In exchange, they’ll take good care of it.
Negotiating these agreements can be tricky, and the owner should always get help from a real estate attorney.
Source: The Wall Street Journal, June Fletcher (06/16/2010)
Renting out your house can be a smart financial move, as long as you calculate your costs carefully.
There are many ways to do background checks on
prospective tenants –credit reports, past evictions,
and criminal background checks, to name a few.
Image: Alloy Photography/Veer
Renting can be a profitable choice, but it requires an investment of time, money, and organization to make it work. Here’s how to determine whether renting out your house is worth the cost. Continue reading
More than 76 percent of people say they would prefer to rent a home than buy one, up 5 percent from 2009, according to this year’s survey from the National Apartment Association.
The survey also calculated that 60 percent of renters plan to continue renting in 2011, with only 12 percent planning to buy a home in the next year.
Some 64 percent of renters cited having no responsibility for major repairs or maintenance as the primary reason they prefer to rent, followed by 33 percent who cited not being impacted by an unpredictable real estate market or susceptible to foreclosure.
Source: National Apartment Association (05/24/2010)