Should I Rent or Buy in Orlando?
As I mentioned above, this formula is more of a starting point than a finish line, as many other factors go in to determining if it is wise to buy vs rent. But, if you need a place to start, this is as good a way as any.
If you are interested in buying a home, please contact me, Steve Simpson at Central Florida Property Management, (407)429-4834. Aside from owning and operating this fine management establishment, I am also a real estate agent with Re/Max Exclusive Collection in Orlando and would love to help you buy your first house (or your second, or your third,…)!
Now that I’ve discussed a mathematical way to determine whether it made more financial sense to buy or rent a home, in regards to rental rates and home prices, let’s move on. As I mentioned, there are much more that goes into determining a financial decision as large as home ownership. So, now I’m going to talk about a couple of those, as well as shed light on a few home-ownership myths that are prevalent in American culture. At Central Florida Property Managment we take these factors into consideration when working with our clients.
When you own a home, the buck stops with you.
Owning a home is sort of like owning a business in that you are financially responsible for nearly everything involved with it. When you rent, if your AC breaks, your roof leaks, or the dishwasher stops working, you call your landlord and (if they’re a good landlord) they pay to have it fixed within a reasonable amount of time. When you own a home, this is not the case. You and you alone are responsible for all of these and much more.
In case you didn’t know, air conditioning systems are expensive; as in, $3,500+ expensive. It gets pretty hot here in Florida and if the AC goes in June, July or August and you don’t have the financial means to repair or replace it, you are going to be in a world of hurt. When considering buying, think about the financial state you will be in AFTER you purchase the home and if you can afford to pay for major repairs and replacements.
A primary residence (a home you own and live in) is a questionable investment
There are three primary reasons I say this.
- Due to the amortization schedule of most residential loans, payments made in the first 5 months of a mortgage are less than 25% principal. People always say ‘paying rent is like throwing your money away’, but unless you consider paying the bank interest as somehow not throwing your money away, there is not much difference between renting and owning in that respect.
- The average homeowner moves every five to seven years. Remember what I just said about amortization schedules and throwing away money to the bank for the first 5+ years of a mortgage? See where I’m going with this? If you move after owning a home for only 5 years, you will likely only have slightly more equity in the house than when you purchased it. Which leads me to…
- Most of the ‘investment’ gains from homeownership come from appreciation which, as we’ve seen over the past 5 years, is not always guaranteed. Yes, home values should keep up with inflation at a minimum over the long run. But banking on your home to act as a legitimate investment and to have any sort of relative appreciation is a dangerous investment strategy.