The number one question lately has been from people trying to figure out whether they should buy a house or rent. If you intend to buy your next home as an investment, looking into an area where home values have declined while rental rates have steadily increased should be the first place you look. But, there isn’t a yes or no answer to this question because it all depends on the length of your anticipated holding period, your credit rating, and above all else your ability to locate a bargain and be successful in your negotiating tactics.

Check Our The Rent Vs. Own Calculator

Our present housing market has created some great opportunities to buy for the following basic reason.

When the federal government lowered interest rates in 2002 and 2003 to boost up the housing industry to avert a recession, it was easy to make a loan at interest rates as low as 4.5%. All kinds of mortgage packages were available and you could buy a house for no money down. Everyone rushed in to sign up for these adjustable rate mortgages with low interest only payments for five years. Now 5 years later, the interest rates have increased to where people simply can’t afford to make their monthly house payments. That’s why there are more homes for sale today than at any time in the history of the Multiple Listing Service. That’s why you see so many for sale signs. That’s why there are so many foreclosures and short sales. Some families and investors can’t afford to hold onto their purchases and rather than walk away from mortgages and give back the houses, they are being sold at a loss just to get out from underneath the burden of making the payments.

The downturn in the housing market has created buying opportunities where houses are cheaper today than they were 5 years ago!

Historically, California real estate has always appreciated within a 10 year cycle. Residential property stopped appreciating in the summer of 2005. Historically speaking there is a high probability a house purchased today will be worth more by the year 2015.. Housing prices may rise sooner than 2015 but history says prices will not be less than 2005 prices in the year 2015. So, like the stock market, buying a house can be looked upon as being a long term investment if you intend to sell it for more than you paid for it.

In a down market some believe it is cheaper to rent than to own. This may be the case if you are not earning sufficient income to be able to take advantage of the tax savings in owning your own home.

All of the interest you pay on a mortgage is deductible from your gross income which lessens the amount of state and federal income tax you have to pay. Let’s say you buy a $450,000 house with no money down and agree to pay 6% interest only for the first five years. Your payment will be approximately $27,000 per year. Real estate taxes are also deductible and amount to approximately 1% of your purchase price which would be about $4,500 per year. When a family has income of approximately $100,000 per year they pay a total of about 33% in state and federal taxes. That’s $33,000 per year. By owning a home they can deduct $31,500 from their income and save $10,395 in taxes.

It’s like having the government pay you $10,395 each year to help you make your payments. As a renter of a house, you cannot deduct the amount you pay for rent.

So is it cheaper to buy or to rent?

In a soft or down housing market when there are so many homes for sale, rental prices tend to fall since many homes for sale are second homes that families can't afford to keep. When they can’t sell them, the next best thing to do is cut their monthly losses by renting out the house. The more that are available to rent, the cheaper they will be.

Once you’ve chosen the area where you’d like to live, check out the rental rates. New homes will most likely be priced somewhere near what the payment would be if you were to buy that house. Think of it this way. If you had to decide whether to sell your house or rent it out to make the payments, what would you rent your house for? Wouldn’t you want to get at least enough to make your house payment and set aside something for insurance and taxes?

In general the rental prices of homes are going to come pretty close to what it would cost to buy the home. But as a renter you get no tax saving advantages. So if the housing available for rent is close to what it would cost you to buy in the long run I agree that buying a home is a great investment. When looking at the possiblity of buying a home consulting a highly trained agent is a must. Our Real Estate Agents make this their full time job. Our agency is constantly studying the market and have been trained for strategic negotiation of investment property.

To see if it would be in your best interest to buy we have provided a buy vs. rent calculator below. If you have any questions please give us a call and one of our Agents will be happy to assist you.