Abberly at West Ashley Blog

When deciding whether to rent or buy, you are making the choice to rent an apartment home or renting the capital needed to buy a home. Most Americans don't consider that they are renting equity (from the bank) to buy a home. As you are aware, very little equity is built in the first few years of paying a mortgage. Many people are surprisingly still very unaware of this fact.

This following article explains how renting is financially better than buying in about 75% of cases!

For the Past 30 Years, Renting Was Generally Better Than Buying

If homeownership is the American dream, then the nation had better wake up. That's the message from a new research paper that examines whether buying or renting a home was a better financial decision over the past 30 years. Most would find the result surprising: over the period Americans were better off renting between 65% and 75% of the time, depending on the investment alternative.

The article essentially looks at eight-year periods and assumes that a person invests the money he or she saves by renting. Since buying is generally more expensive than renting, renters have extra money to invest. It also makes a number of assumptions favorable to homeownership, including gains from the mortgage interest tax deduction, the option to refinance, and the ability to walk away -- loss-free -- from an underwater mortgage. Still, renting wins approximately three-quarters of the time.

The staff at economic research organization e21 explains why this result actually shouldn't be so shocking:

Counter-intuitive as the finding may be to some, it is actually quite logical. Unless someone possesses the cash necessary to buy a residence, he or she will be renting one way or another. The choice is between renting the property directly or instead renting the capital necessary to buy the property. The amount of capital to be rented is a function of house prices, while the bulk of a mortgage payment is interest, which is the rental payment on this capital. After 2 years, the typical 30-year amortizing mortgage balance has been reduced by less than 3%. This means that a household that took out a $300,000 mortgage with a 5% interest rate to buy a home has only reduced its mortgage balance by $8,600 after two years despite spending nearly $39,000 in total over this period.

Housing advocates may respond by pointing out that at least the $8,600 in this scenario went towards home equity rather than simply being squandered on rent. But, as demonstrated in the Real Estate Economics article, the principal component of each mortgage payment - i.e. the portion of the mortgage payment that goes towards reducing the principal mortgage balance instead of interest - is an added expense renters don't have.

This turns the real estate industry's biggest talking point on its head: you aren't throwing rent into the wind each month, you're casting away equity.

Of course, that equity also provides a potential benefit. The analysis's eight-year rolling methodology appears to miss the biggest reward of owning a home: living rent-free once the home is paid off. After that 30-years is up, the longer a family remains in that home rent-free, the more buying pays off. Taking this into account would almost certainly change the result in some, if not all situations. Renting may be a better option initially, but there's no eventual reward.

An important point still needs to be made here: buying a home that you don't plan to live in for an extended period of time probably isn't a great idea. The rent you pay in the form of interest on a 30-year loan for five or even 10 years won't be any better than if you had just rented outright. But if you're planning on living in a home for 30-plus years, then you could potentially get some benefit from buying rather than renting.

Original article by By Daniel Indiviglio, The Atlantic

Why NOT to think of buying a home as an investment!

We all need a place to call home but even with the real estate downturn, many people continue to think that buying a home is a good investment and a way for them to build wealth.  When times were good, this was not really the case for most people.  Wherever you choose to live, make sure it’s for the right reasons.  Owning a home can be rewarding. Renting an apartment home in Charleston at Abberly at West Ashley can also be very rewarding.  Don’t just take our word for it – check out this article on Yahoo Finance: Why Your Home Is Not the Investment You Think It Is. We have to be realistic when it comes to our future.  A house is a great material to have, but if it does not put money into your pocket then it is not an asset.  Let us know what you think about this topic in the comments section…

From HHHunt by Jennifer Moran

Have you ever heard the expression “People hear what they want to hear”? For some reason, most people seem to immediately believe their friends and family when they are told that they should “stop throwing their money away on rent and buy a home”.

First of all, the majority of money that you pay towards a mortgage is mortgage interest (especially in the first few years of a mortgage) and all of this money goes directly to the bank (not to the principal). On most 30 year mortgage loans, it is not until year 19 or 20 that you are paying more towards the principal than to mortgage interest. I am a home owner and have yet to hear anyone tell me that I “should stop throwing all of my money away to the bank”.

Secondly, there is a lot more money “thrown away” on closing costs, maintenance costs, insurance, property taxes, landscaping, and decorating. For those that are continuing to choose to rent an apartment home at Abberly at West Ashley don’t be so quick to believe those well-meaning friends who tell you to stop throwing your money away. Most of you are throwing away much less money than those home owners and have a maintenance-free life!

Ultimately the choice is yours. But this is just something to think about.

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While driving in my car the other day, I heard a radio commercial for a really popular home builder in this area.  As someone who has rented an apartment, owned a home, and had a father who constantly taught fiscal responsibility, I tend to see the flip side of any type of new and exciting financial obligation (such as buying a home or car).  This particular commercial touted that you could own a home for just as much as you pay in rent.  This is almost always a misleading statement and I really can’t believe that builders and sometimes Realtors can tell people this with a straight face.

• First of all, the monthly mortgage that they typically advertise does not include property taxes and insurance.
• Secondly, it does not include HOA fees which can be anywhere between $50 per month to $300 per month, depending on the neighborhood.
• Thirdly, and most importantly, the advertised monthly price does not include the yearly maintenance (usually 1% of the home value per year) and decorating costs.

Obviously, you don’t have any of those costs when you are renting an apartment home at our community.   I know that many of you have owned a home and understand the financial responsibility of home ownership.  For those who haven’t, keep this information in mind when listening to one of those commercials!

There are so many factors that should be taken into consideration when deciding whether to buy or rent. Peer pressure (to buy a home) has often played into people’s decisions to purchase but every person’s finances, lifestyles, and needs/wants are different.

Check out this article from CNNMoney.com on renting and buying.