Renting vs Owning — the Pros and Cons

When to Buy?  Why should I buy?  

Those types of questions a person ask themselves could fill a blog all on to its own.

Let’s keep it simple and look at a few Pros/Cons for Renting and Buying:

Pros of Renting:

1. Financial easier to do
   With as little as 2 months rent (1 month for the down payment and the other for the first month rent) to put down and the application fee (on average $40-$50 per adult applicant) — you can be in your rental property by the first of the month or mid-month if needed.
2. Allows one to relocate/stay mobile
   1. If you are not committed to a location or if the location is just a “pit” stop; then renting might be easier.  Renting allows you to established temporary roots.
   2. Everyone knows the rule of real estate is LOCATION, LOCATION, LOCATION: Renting will allow you to “test drive a location to make sure it is the area for you”
3. No maintenance
   1. Assuming you do not have a slumlord, that leaky toilet is not your problem.   Pick up the phone call the maintenance person or the landlord; that toilet problem is a thing of the past and your pocket will not feel a thing.
   2. Regular household checkups for the AC unit and pest control — unless otherwise stated in your lease — will be taken care of by your landlord.

Renting what a life…or is it?

Cons of Renting:

1. No control of the rent amount (in between leases)
   1. The landlord will dictate how much you will spend.  If you are confident that you will be in a location for more than a year; than go for a multi-year lease.  A landlord (unless otherwise dictated in the lease) can not raise your rent mid-lease.
2. Landlord dictates decorating
   1. Landlords will usually let you paint the walls that electric blue trimmed in purple with hot pink polka dots.  Just make sure you white wash over that “Monet” before you move out if you expect your deposit back :-D.
   2. Now that wall that is not needed and is a bit of an eye sore — No sorry, you can not remove it; unless the landlord gives permission (which is doubtful)
3. No equity aka “Rent never goes away”
   1. In the end, renting is just paying someone else’s mortgage.  Other than a roof over your head; you will not get any equity for all the years of paying rent.
   2. And like I like to remind people — “Rent never goes away and you can count on it to go up”

Pros of Buying:

1. Equity
   1. Shake off the major House decline from 2007/2008 timeframe — real estate is a legitimate investment.  As the value of the home goes up and your mortgage debt goes down; the equity in your home goes up.  You can not beat that.
2. Creative Control
   1. Now if you have a wall or if you want to add a wall to your abode; there is no one to stop you (Just make sure you get the proper permits and inspections performed)
3. Mortgage goes away
   1. Mortgage eventually goes away 😀  

Cons of Buying:

1. Do not buy more house than you can afford
   1. Regardless what the bank tells you about how much house you can afford; it is your responsibility to determine how much house you feel comfortable spending.  Trust me, I have never found myself arguing with a loan officer that I could afford more house.  If anything, I found myself subtracting from the number they gave me and I purchased less house than I could afford.  it is a habit that I would highly recommend.
2. Wrong location
   1. If you are a introvert; purchasing a house in the middle of a bustling city; might not be  the right location for you.  If you are an extrovert; that quiet country living might not be for you.  If you know you want 8 kids; that high rise luxury condo – might not be the best option for you.
   2. My point?  No one can determine what is the right location for you.  Only you are the master of where you should live.
3. HOA/Condo fees
   1. More and more new developments have Home Owner Associations (HOA) and/or Condo fees.  For some people this is a God send.  If you have a “Sanford and Son” wannabe next door – the HOA will make “Fred” clean up that junk yard.  At the same time, you want to paint your house hot pink with yellow stripes; the HOA might be sending you a letter.  So depending on your situation, HOA/Condo fees can be a nightmare that you must pay for.

Which ever path you are currently on — make sure it is a path that fits you.  Both paths have pros and cons; if you are  trying to make that transition from renting to buying; do not forget to sit down and come up with a game plan.  A game plan helps identify what you are working for and towards.

Until next week – From My Family to Yours

Rent Back – Ins and Outs

Last week blog I mentioned  “Rent Back” as a valid alternative to an homeowner trying to upgrade to a new home without being burdened by owning 2 mortgages.

A quick recap on the steps to “Rent Back”:

1. Current home on the market
2. Buyer’s Agent starts the negotiating with Listing Agent or vice versa
3. Listing Agent makes sure “Rent Back” clause is in the contract
   1. Rent Back is an agreement for the Current/Former Home Owner to continue living in the house after the closing
   2. Buyer/New Home Owner will be a temporary Landlord
4. After the contract ratified — all the normal activites occur
5. Before the closing – there is the first walk thru
6. Closing occurs – no one moves
7. Then the Former Owner (flushed with cash) starts the home search for the new home 🙂
8. Find new home
9. 2nd walk thru on the original home
10. Now everyone moves

In a nutshell – “Rent Back” occurs the Closing:

• the seller is now the “previous owner”/”new tenant” retains physical control of the property
• the buyer is now the “new owner”/”new landlord”

This arrangement is expected to be short term.  Usually long enough for the previous owner to locate and move-in to their new home.

One Key point – the Escrow funds are disbursed.  This allows the former owner to receive the cash owed to them.

At a minimum both parties should expect to record the “Rent Back” agreement in either the sales contract or another separate document that has been ratified by both parties.  (Sorry to sound like a broken record, but it is advisable to consult an attorney to make sure the agreement meets state requirements and protects the rights of both parties equally.  You could approach the company handling the closing – they are usually attorneys).

Also, make sure the new bank holding the mortgage will not have a problem with the agreement.  Case in point: Closing held up by a Rent Back Agreement

It is recommended that the rental price should be based on the new owner’s total mortgage payment (Note: the total mortgage payment is the principal payment + interest + escrow contribution).  For example, if the new owner’s total mortgage payment is $2400.00; then based on 30 days per month:

• Daily rate is $80
• Weekly rate is $600

The agreement should include the following information:

• Term (length) of rental
• Amount per day, week or month
• Security Deposit
• How the funds will be held and dispersed:
  • in an escrow account
  • payed at once after the 2nd walk thru
• How will the utilities be handled
• Will the landlord require the new tenant to carry renter’s insurance (NOTE: Do not assume that the tenants former homer owner insurance policy will cover during rental phase – if the insurance company agrees to provide coverage it should be writing.)

It is not recommended for the new owner to expect the former owner to perform any house repairs or home improvement.  Nor is it recommended to bring in the handyman to get the walls painted or the new carpet put down.

From my Family to yours: The first home my husband and I purchased, we did a Rent Back to our sellers.  We came out of it unscathed and enjoyed the extra time to get the carpet ordered (not delivered), picked out the paint, and organized our move.  It is tricky trying to arrange all of this items prior to the closing because the closing date tends to be a bit on the “wiggly” side – in other words – it isn’t final until you have left the closing table with writer’s cramp 😀

The Tale of 3 Mortgages – Upgrading to your new home

I said to a friend recently – Hey there are a lot of great Foreclosures and REO/Bank Owned available.  His reply, “I can not afford 3 mortgages”. 😉

For a lot of couples with a small child, daycare can feel like a 2nd mortgage.  Even with Flex Spending Account (FSA), on average daycare cost for 1 child could is about $17,004 a year with the FSA reimbursement that is about $12,004 a year.  Nothing to sneeze at and it could feel like a 2nd mortgage.  Compounded with the idea that it may be time to upgrade the current abode for more space..what is a hard working couple to do?

Here are a few recommendations but please always check with your loan officer and/or tax expert (neither which is me — I am your Real Estate Agent)

1. Stay put
2. Purchase the next home; then sell the current one
3. Sell the current home; then do a Rent Back
4. Start Real Estate Investment Portfolio

Stay Put

You could decide to wait until Little Johnny Blue or Susie May get out of daycare.  But where is the fun in that  Beside you may decide to increase the family size — more space would possibly be a requirement..

Purchase the next home; then sell the current one

Everyone’s ideal goal – purchase the next home; then sell the current one without having dual mortgages.  If the stars and the moon align properly; it is possible.  Of course you would have to show the bank you could afford 2 mortgages (80% of the current mortgage would count towards the debt ratio) and you would still need a down-payment for the new house (if only you had an extra $12000 – $17,000 just laying around).

With planning and budgeting, I guess anything is possible.  There is possibly an easier way.

Sell the current home; then do a Rent Back

Go ahead and be crazy…sell your current home.

WHAT!?!?

Sell the current home she says–and where do we live —

Where do you live?  In the current home, of course.

Really simple:

1. Current home on the market
2. Buyer’s Agent starts the negotiating with Listing Agent or vice versa
3. Listing Agent makes sure “Rent Back” clause is in the contract
   1. Rent Back is an agreement for the Current/Former Home Owner to continue living in the house after the closing
   2. Buyer/New Home Owner will be a temporary Landlord
4. After the contract ratified — all the normal activites occur
5. Before the closing – there is the first walk thru
6. Closing occurs – no one moves
7. Then the Former Owner (flushed with cash) starts the home search for the new home 🙂
8. Find new home
9. 2nd walk thru on the original home
10. Now everyone moves

Yes, it is that simple.

Start Real Estate Investment Portfolio

Keep the current home as investment property.  Again, sit down with your loan officer and/or tax expert.  If not right away eventually nice strangers will be paying off your first home and helping you pay off the current home.

WOW !!!

Seriously, regardless which avenue you go down — Plan, Plan and Plan.

Never go down a path without investigating all of your options and understand/identify potential pitfalls.

Life isn’t perfect but with careful planning it can mimic perfection quite nicely.

Until next week, From My Family to Yours

Eminent Domain – What is Fair Valuation

I am going to start this blog with a DISCLAIMER – It is not my intention or goal to provide an opinion or view on the case that has inspired this Blog: Ramsey vs VDOT

With that – it is interesting the range of emotions that sweep people when they hear these 2 words side by side “EMINENT DOMAIN”

The online resource, the free dictionary provides this definition:

“The power to take private property for public use by a state, municipality, or private person or corporation authorized to exercise functions of public character, following the payment of just compensation to the owner of that property.”

Seems simple enough – no one is “losing” anything just provide “just compensation”.  LOL

The Commonwealth of Virginia has a wealth of laws surrounding two little words: Eminent Domain Legislation in Virginia

hmmmm…doesn’t seem so simple now

When I read the above article I thought “COOL”.  I know in my family there has been at least 3 cases of Eminent Domain being used.  However, my relatives didn’t end up in court.  I believe they felt they had received “just compensation” .  A look at their situation at that time may have contributed to why they were happy with their package.

From my Family to yours: Eminent Domain — Presented Family Style

CASE 1: Great Great Grandmother’s house and neighborhood

My Great Great Grandparents moved from North Carolina to Virginia in the early 1900s.  They settled in a neighborhood that is now known as Oakwood in Norfolk, VA.  They got land and home.  And proceeded to settle down to raise their kids…

We are going to fast forward this story to the early 1960s.  The house and land in question is now heir property.  My mother and her siblings (except the youngest) were raised in the house in Oakwood.  Because it was heir property, my grandfather had to allow his cousins to crash at the house when they wanted to.  Now, I am sure since my grandfather was the one paying the taxes, etc; he could have stop that but that wasn’t the type of person my grandfather was.

Now at some point, rumor mill started churning.  Rumors about the government taking people’s land was the hottest gossip going in Oakwood.  Grandfather was a man of his era.  He was a WWII Army Vet.  He spent about 4 years in the Army.  When he got out he took a job as a Civilian Employee at one of the local bases.  His life goal was simple – to provide for his family:

• clothes on their back
• meals on the table
• roof over their head

He didn’t sit back and wait.  He started asking around for any land for sale.  He found a plot of land in Virginia Beach and purchased a house from 2 elderly sisters.  He moved the house to the land in Virginia Beach.

Now at some point Grandfather (and several neighbors) were notified that their land was being claimed for Interstate 64 (I am paraphrasing because I don’t know what he was told – I just know the end result).  For my grandfather, this was fine; he already made sure he had a place for his family to live.  My grandfather and his cousins split the money they received for their grandmother’s house and land.

For me, my mother had to attend Union Kempsville High School vs Booker T Washington High School.  She meet her High School sweetheart at Union Kempsville.  The sweetheart was/is my father.  Since they are still together — I am thankful for Eminent Domain 🙂

(NOTE:  If you are ever in Norfolk on I-64 and you pass/get-off at the Chesapeake Blvd Exit – you are driving over land once owned by my ancestors)

CASE 2a: Mama Betty’s house and Dad’s childhood home aka The Tale of Two Homes

This Case involves 2 homes:

• Mama Betty’s House
• Dad’s Childhood Home

Mama Betty’s House

Mama Betty (1906-1989) – I swear I could write a blog on this woman.  The older I get the more I poke my chest out with pride when I think about her.  At a time when a woman’s place was in the home, she saved and struggled to end up owning her own home and land.  It was not a big home – in fact it was a 3 bedroom cottage with no indoor plumbing.  You walked into the living room (no foyer), from there you entered the dining room (the entry way to the bedrooms were off to the right), keep going straight back into the kitchen and out the back door.

It was small but my brothers and cousins would agree the memories could fill the Taj Mahal.

She worked and saved.  In the summer of 1978/1979 – my father and Uncle helped put plumbing into her home.  She had running water in her kitchen.  She turned the middle bedroom into her bathroom.  So the 3 bedroom/0 bath Cottage was now a 2 bedroom/1 bath Cottage.  Either way it was still her home.

Dad’s Childhood Home

I really don’t know the history of Dad’ childhood home.  Since my Great Grandfather aka Papa Snowden owned several properties, he was probably the connection to my grandparents getting the home; either way the 2 bedroom cottage was the childhood home of my father and uncle.  Later this house was the first home of my uncle and his bride.  My cousins also knew this house as their first home (ownership was still maintained by my grandparents).

Preparation

My father’s parents eventually inherited Mama Betty’s house.  Just like with my mother’s parents, my paternal grandparents heard the rumbling of the government looking for land.  There were hearings and opportunity for landowners to learn what was going on and to understand their rights.  My grandparents attended.

One story, my father heard from my grandparents was a woman that stated, her house in question was rental property.  So how would she determine the value of the house since the income would stop.  It was explained to her, the city didn’t want the house, they wanted the land.  So if the house was on the land, the city would offer her less money because they would take into consideration how much it would cost them to clear the land.  If she wanted the maximum dollars for her land, she would have to get rid of the house.  That sealed the fate of Mama Betty’s house and my Dad’s childhood home.  My grandparents made plans to demolished both homes.

The houses were demolished in the early 90s.  My grandfather passed away in the mid-90s.  It wasn’t until 2002/2003; when the city finally purchased both parcel of land from my grandmother.  When they did, they paid top dollar because she had 2 parcels of cleared land to sell them.

You must educate yourself.  You must listen.  You must accept reality.

That is what my grandparents did.

And you can negotiate with the government – my grandmother’s contract included a clause that her properties could only be used for parking spaces – trust me – her former land has nothing but parking spaces on it.

Case 2b: Great Aunt’s house

The same Eminent Domain Venture that “claimed” my Great Grandmother’s house and my Dad’s childhood home, also claimed my Great Aunt’s house.  My Great Uncle and his wife raised 3 kids down the street from where my father grew up.  In fact, my childhood memories included parking at either my uncle’s house or my great grandmother’s house.  Visiting with them and walking down the street to see my great Uncle. (3 relatives with one “stone”)   😉  LOL

My Great Uncle passed away in the early 90s.  My aunt made it simple for the City – “I want a ‘turn key’ house”.  She owned her house outright and at her age, she didn’t need nor want a mortgage.  She wanted to be left in the same condition they found her.  The city sent her some houses to look at.  She selected her “new” home.  The city even paid to have her packed up and moved.  She signed over the old house.  I believe all she had to do was unpack.

State what you want upfront and clearly.

She wanted “No Mortgage”.  She wanted to Turn the key and it was hers.

She asked and she received on all accounts.

Conclusion

Again, I offer no opinion or thoughts on the story that led to this blog.

What I do offer is some basic simple advice:

• Never hesistate to retian legal counsel
  • I am not 100% certain but I do suspect my grandmother might keep an attorney on retainer
• Minimize any negative impact to your situation as much as possible
  • my grandfather didn’t wait – he located a new home for his family
  • Don’t let the first word “Eminent” fool you – the wheels of the Government don’t move that fast.
• You must educate yourself.  You must listen.
  •  Attend hearings and board meetings
  • Ask questions
• You must accept reality.
  • Memories are priceless but they are stored in our hearts and in our minds
  • My grandparents accepted that it was time to let go of the two homes
• Be Realistic but be firm in what you are expectations are and speak up
  • My grandmother got the City to agree to how her land would be used
  • My great aunt just wanted another home with no mortgage

What is Fair Valuation – It  is always that midpoint – between what the asset is worth to the seller and what the buyer is willing to pay.  No magic wand and no emotions.

“Customer” Testimonial: Joe and Karen Snowden

My wife and I purchased a FSBO in the Fall of 2014.  This was my 3^rd home purchase and the owner was a close family friend that flipped houses has a side job so we figured we would skip the real estate agent.  The price was agreed to and all that was left was the mortgage.

I am all about helping out friends.  I have a friend that is a Mortgage Broker.  He hooked me up with a loan company.  The company pre-approved us.  All that was left was the closing date.

Now, we did do a short sell on our main resident 2 years prior to this.  So after about a month of waiting around the loan company came back and said hey you have to take this credit course because of the Short Sale.  Okay so I took the credit course, waiting the required 4 weeks.  Another 2 weeks go by, in the meantime, Marletha (Big Sis to me), was monitoring the situation from afar.

She would ping us to check on the progress and asked – when is closing.  We would tell her the same thing – everything is fine and still waiting on the closing date.

Now patience isn’t her strong suit but if she needs to she can fake it J  After a while she pointed out that something was wrong.  The underwriter was taking way to long.  So I gave the loan company an ultimatum – you have 48 hours to give me a close date or I would take my business elsewhere.  They responded with a rejection letter.  I got on the phone with the lawyer and Big Sis sprang into action – we live in Delaware – she resides and is licensed in Virginia.  Even 2 states over, she managed to find a licensed loan officer willing to help us out.

Now, again, a family trait that we share is our loyalty and willingness to help out our friends.  The Mortgage Broker was a friend of mine so before I reached out to the person my sister found for me, I did give my friend one more chance to find me a loan.  Within 2 weeks, the wife and I were sitting at the closing table.

In the end, I did need a Real Estate Agent – I needed my Big Sis—Marletha Snowden Dyer.  When she gives you her word; she is there for you.  It is in her nature to protect and guide those around her.  I cannot recommend a better person for someone to trust with something as important as a real estate transaction.

To some degree I am bias but the reality is – if you need or want an agent that will but your interest and needs first, plus give you 100% honesty – I do highly recommend my Big Sister

Sincerely,

Joseph C Snowden

“Rent to Own” – Virginia Style

In a nutshell – whereas in a standard leasing aka renting scenario – the renter receives no consideration towards property ownership at the end of the leasing arrangement.

With a “Rent to Own” arrangement, the renter will receive predetermined consideration aka Earned Credit.  This Earned Credit is determined at the start of the lease, it could include:

• money towards closing costs,
• money towards the down payment,
• money off the purchase price

or a combination of any of the aforementioned items.

In the state of Virginia this the legal term is the “Virginia Lease-Purchase Agreement Act.”

Why would a Seller agree to such an arrangement:

• House has been on the market to long
• Doesn’t want to lose money on the home
• Faced with 2 mortgages

Seller’s Pros and Cons in a “Rent to Own” Scenario:

• Pro – Seller can lock the price down to a better than average price
• Pro – Renter may be incline to treat the house like the already own it
• Con – If a qualified buyer comes along, the seller can not pursue
• Con – if the Renter falls behind on the rent; the Seller is back to paying for 2 mortgages

Why would a Renter agree to such an arrangement:

• Isn’t able to qualify for a mortgage
• Needs time to be able to “afford” dream home
• Not sure about the house
• Not emotionally ready for the responsibility of home ownership

Renter’s Pros and Cons in a “Rent to Own” Scenario:

• Pro – Lease gives the Renter time to work on their Credit; which is also improving their debt to income ratio
• Pro – Renter can “try out” the house before committing to purchasing it
• Con – If Renter walks away from the house either during or after the lease; then all Earned Credit is lost –(NO-you can not take it with you)
• Con – If Renter is unable to qualify for a mortgage at the end of the lease and if the Seller doesn’t renew the lease; then the Buyer loses out on the Earned Credit
• Con – (Major RED Flag) If the Seller doesn’t pay the mortgage; the property could get Foreclosed on and the Renter loses the Earned Credit

If there is one scenario where I would HIGHLY a Real Estate Lawyer – this is one.  This arrangement can be a very  beneficial relationship – 2 parties helping each other out.  On the flip side, it can also become a very volatile relationship if one of the parties whether unintentional or intentional doesn’t hold up their end of the bargain.