By Tonya Moreton, PPMA Executive
Director
Excerpts reprinted from the May 2002 LPMAnews & GTAA Building Blocks
In an industry where a recent
survey by the Royal Bank says “that the percentage of renters planning to buy
a new home in the next two years has risen from 32% last year to 35% this
year”, a wise property owner/manager should be educating their residents on
exactly why it is sometimes better for them to remain a renter and forego
becoming a homeowner.
When educating your residents
about the advantages of renting over buying, you must advise them to consider
much more than simply monthly rent vs. monthly mortgage payment.
Such items as hydro, cable, water and others that may currently be part
of their monthly rent will now be the added responsibility of the new homeowner.
In addition there are other items
that they must now purchase to maintain their properties such as lawnmowers,
rakes, shovels, hoses, etc. that they might not have considered as expenses
related to the purchase of a new home.
There are many pluses and minuses
both ways, many of which fall outside the realm of dollars and cents and
ultimately the decision to purchase a new home is of a personal nature to each
resident. And while “the common
wisdom of mortgage lenders and real estate people is that making a monthly rent
payment, as opposed to a mortgage payment, is a bad idea and is the equivalent
to throwing money away”, following are just a few among the many advantage of
renting vs. homeownership.
Renters are freer to move as they
are not entangled in a huge long-term financial investment and the commitment
that lies therein; should the desire or necessity arise, they are free to leave.
Renting provides an enormous
amount of flexibility in housing choice with leases from as short as
month-to-month. Moving from a house
involves significantly more planning, time and costs (realtor fees, mortgage
fees, waiting to see if your property will sell, etc.).
And if housing values decline, invested money can be lost.
Renting allows for the added
freedom to invest savings in diversified equities and savings funds that are
often tax-sheltered and subsequently the renters money is freer to use or
reinvest.
While the cost of renting an
apartment or house is much less than the monthly cost of buying one, a renter is
only responsible to come up with the first and last month’s rent, as opposed
to the thousands of dollars in up-front fees or closing costs (such as
inspections, legal fees, land transfer taxes, insurance, etc.) that house buyers
are burdened with.
As mentioned earlier, regular
home/property maintenance, landscaping, improvements and upgrades are expensive
and sometimes costly repairs arise unexpectedly and most likely when they have
not been budgeted for. This also
makes it difficult if not impossible to start or continue contributions to
savings or investment programs for vacations, retirement, etc.
Mortgages are structured so that
the first several years of payments are almost exclusively paying interest
rather than principal. So the
desired effect of homeownership (the opportunity to build equity) doesn’t
begin until after several years of mortgage payments.
And when a homeowner cannot pay, the lender has great leverage - the
house and all of the equity invested in it...not to mention the hard work and
dreams of the homeowner.
So while the Royal Bank survey
shows that 65% of renters believe that the low interest rates are making the
cost of homeownership relative to the cost of renting, there are a number of
factors that may not have been considered by the renter in their purchase
decision.
Prudent property owners/managers will seize the opportunity to educate their residents about the benefits of remaining a tenant; the offshoot being that they are also strengthening their bonds with the resident and improving resident retention.