 I get the question a lot: I am thinking of moving or upgrading… do I rent or sell my home?
That question is really loaded. A simple yes or no answer doesn’t really do the question justice. Honestly, anything shorter than an article really can’t answer the question and does you the questioner a disservice. Therefore, this article is for all of you who have thought, asked, or wondered about this conundrum. Before We Get Started. Let me preface this whole discussion by saying: It really depends on YOU! No matter what is said in this article — or any other forum, newspaper article, etc. — at the end of the day, it is what YOU are comfortable with and willing to do. Think of it like stocks: while you can make a killing in the penny stocks, you have to be comfortable with your financial decisions — because at the same time, you can lose your shirt! Any investment that entails the use of a “vehicle” to obtain your dreams is going to have its up and its down days. If you don’t fully believe and aren’t invested in it to succeed, you will be not be a successful landlord. Going into this half-hearted means you won’t be willing to go the extra mile to stay out of landlord trouble, deal with tenant stress or any of the other wonderful “consequences” that come with being a landlord. On the other hand, if you choose not to go in this direction, you won’t be able reap the amazing rewards that come with being a successful landlord. Lets Get Started: Do I Rent Out or Sell My House? Here are some questions you need to ask yourself: Are you willing to be a landlord? Being a landlord isn’t fun, and it definitely has its moments. For us, they have only been in the form of emotional, not financial, stress. That is draining and never seems to be at a good time. We have had tenants break lease during a move, right after my husband deployed, and we’ve had a house leak during our vacation — to name just a few of the “fun” situations of landlording. While the rewards have been amazing, they are slowly realized, so patience is a must. Are you going to make a profit or bring money to the table? If you bring a profit to the table, make sure you have assessed the true profit after real estate agent fees and capital gains. If you are bringing money to the table, make sure it is an amount that is worth it to you! What is the TRUE cost of bring money to the table? Frequently, I see calculation of the costs of having a home based on vacancy, management, and maintenance costs. If the only reason you are selling is for monetary purposes, make sure you are looking at the costs. While long term you might have vacancy and management costs, I have been able to eliminate these costs. My houses’ margins are $120-$450 a month, and I have NEVER had to raid my pocket to pay for anything. So before you shell out $40,000, figure out how long it will take you to break even! It might not be as bleak as you think. Remember, if you can afford it, there is nothing wrong with trying the rental thing and then selling it if it doesn’t work out. For example, if you are losing $100/month, that’s $1200/year. If it costs you $40,000 to get rid of it, it would take 33 years to break even. That’s a lot of “extra” cost that would have to appear to make it worth the $40k! Plus don’t forget about deprecation and other tax “credits.” Just food for thought! Are you looking for cash flow or payout? Life requires flexibility; business success requires a plan. Create a plan that reaches your long term goal. Our long term goal is early retirement for 15 years. While our plan when we started 3 years ago looks NOTHING like what we are doing today, we still are on path for our goal! Do you have a better place to invest the proceeds? Congratulations, you can make $20,000 if you sell the house! Now for the hard question: what are you going to do with it? I could sell all of my houses for a profit, but I couldn’t reinvest them into other assets that give me the same return long term. My goal is long term cash flow for early retirement. So before you sell, make sure you have an reinvestment plan that maintains your LONG TERM goals. Is the area depreciating or appreciating? I recently sold a house for family and 1031-ed it into 3 houses in California. The area was depreciating. The house was older and had an oversupply of brand new condos for rent. While the sales market was still in a good place, it wasn’t going to be there forever. So this was the perfect time to jump ship. Look at your market. Where do you see it going? If you see the writing on the wall, this is the time to leave. Conclusion I am buy and hold landlord who has turned personal properties that are highly leveraged with low margins into great rentals. So of course I am biased when I advise someone to keep their house as a rental. Just remember that once you have a mortgage, it’s yours; there is no re-qualifying later. If you sell now, you have to re-qualify for the new house. While you might qualify for a new house, you might not qualify for 2 new houses. Rates are not at the lowest they have been in history, so if you have some of those amazing 3.125% rates, you might not want to sell. Just remember: look at EVERYTHING before you decide to sell! Weigh in: What questions would you add to my list? What do you consider when trying to decide whether to sell or rent? BY ELIZABETH COLEGROVE ON DECEMBER 29, 2014
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Renting beats buying a home? It depends BTinvest 10/Nov/2014 NEW research says it may be cheaper to rent than to buy a home in Singapore, if residential property prices here continue their current moribund trend. But does this necessarily mean homebuyers here are better off switching to this option? And is property now necessarily the best place to park one's cash?
The rent-or-buy poser is oft-debated, even worldwide. In the United States, a study this year by Trulia found that home ownership is generally still 38 per cent cheaper than renting. Meanwhile, the Reserve Bank of Australia said it could become cheaper to rent instead, with home prices unlikely to keep growing at the rate they have over the past 60 years. In Singapore, home prices have fallen faster than rentals, since loan curbs (that is, the total debt servicing ratio, or TDSR) kicked in. Square Foot Research has found that if prices stay flat, or appreciate anything less than 2 per cent over the next 4-5 years, renting could prove more cost-effective than buying a property. Analyst Esther Hoon, from the independent property research firm, used the example of a buyer purchasing a condominium unit for S$1.28 million in Upper Bukit Timah (District 21). She assumed the buyer then sells the unit four years later - with four years being the minimum holding period to avoid paying seller stamp duties - at the same price. Taking S$1.28 million and subtracting the mortgage paid, remaining loan, and initial downpayment and other miscellaneous fees, he would have made a loss of S$149,000. On the other hand, Ms Hoon's research shows, if he had rented the same unit for a monthly S$2,800 for four years instead, he would have paid a total of S$134,000 in rental - less than the loss he would have made from selling his home. Buying this unit would still be more expensive than renting it, if home prices appreciate one per cent in 4-5 years' time, her research shows. But, the tipping point comes when prices increase 2 per cent or more; then, buying becomes cheaper. For her research, the analyst used median rentals in Q3 2014 and median transacted prices in the secondary market from January-September 2014 for non-landed private homes (excluding bulk sales), on properties ranging from 1,000 to 1,200 sq ft. She assumed that the property loan was borrowed at a fixed interest rate of 2.18 per cent over 30 years, and the rental was fixed over a 48-month holding period. She did not take into account inflation and discount rate. So, does this mean homebuyers here should switch over to renting instead? Singapore, along with some other Asian countries, may be unique in that renting rarely comes across as an option for locals who can afford to buy - even if they bemoan the high cost. Their motivations go beyond mere profit-and-loss calculations, extending also to personal and psychological concerns - financial security or pride, for instance. After all, they do build up equity as they pay down a mortgage, said R'ST Research director Ong Kah Seng. Property prices also generally do appreciate in the long term, while rental money essentially goes nowhere, neither bringing one closer to owning a home nor yielding one any returns. It is merely "helping your landlord to pay his monthly mortgage", Mr Ong says. Singapore's housing policies are also more geared towards home ownership than leasing. Central Provident Fund (CPF) savings, for instance, are a powerful tool that helps locals to buy properties. CPF Ordinary Account savings can be used to pay for the downpayment as well as monthly loan instalments. "Many people are unsure how best to make use of their CPF monies during the interim years, but if they invest in a flat or private property, they will be on a sure path to capital appreciation in the long term," Mr Ong said. As for deep-pocketed foreigners looking for a safe haven to park their cash, the absence of a capital gains tax in Singapore continues to provide them an incentive to buy. But beyond the rent-or-buy options, is there a third alternative investment for one's cash? Or, put another way, what is the opportunity cost of the equity or capital tied up in a home purchase here? DTZ's Southeast Asia regional head of research Lee Lay Keng points out that home prices have outpaced equities. She calculated that private home prices have grown 6.1 per cent between post-crisis Q3 2009 and Q3 2014 on a compound annual growth rate basis - faster than the Straits Times Index's growth of 4.2 per cent between September 2009 and September 2014. That said, the performance of the various asset classes can change a lot, year to year. From Q3 2013 to Q3 2014, private home prices fell 3.3 per cent. In contrast, even though the equity market has been sluggish in that same period, blue chips appreciated 1.23 per cent year-on-year as at end-October. |
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