Byline: Lew Sichelman
Housing isn't the investment it used to be. Or is it?
Certainly if you bought at the peak of the housing boom-say, 2004 or 2005-it isn't. But the majority of people who took the plunge more recently think it is.
According to a recent National Association of Realtors survey, 85% of a sample of folks who purchased houses in the 12-month period between July 2009 and June 2010 view their homes as sound financial investments.
Nearly half the 8,500 buyers and sellers polled see their homes as a better investment than stocks, while three out of 10 more say housing is at least on par with stocks. And the findings are roughly the same across all subcategories-new home or existing, first-time buyer or repeat offender, single or married, male or female.
But participants in NAR's annual Profile of Home Buyers and Sellers were also asked how long they expect to stay in their homes, and their answers indicate that most people have come to the realization that housing as a quick dash to riches is a thing of the past.
The median expected length of tenure is 10 years, with repeat buyers planning to remain a median of 15 years.
But is even a decade long enough at today's appreciation rates for an investment in housing to turn a profit? Or put another way, which makes more financial sense nowadays, buying or renting?
To be sure, homeownership isn't for everyone. Some people simply can't afford it, and others simply aren't cut out for it.
Then there are those who simply enjoy their renter lifestyle. They don't have to mow the grass or rake the leaves. When something breaks, all they have to do is call the landlord. And they can pick up and move with just 30 days notice.
Of course, renters give up a lot, too. They can't make their home truly their own because they aren't permitted to make improvements or even paint the walls in just any color they choose-only neutrals, please.
And they don't have much of a say when it comes to how their communities are run, either.
Despite those factors, though, the decision to buy or rent has been pretty much a monetary one.
So forget for a moment all that intrinsic stuff about being able to turn a house into a home, giving kids their own backyard in which to play, and living where the schools are better. If a family has enough dough socked away to cover a downpayment and closing costs, if it can qualify for a mortgage and if it can afford the monthly payments, property taxes and insurance, it usually buys.
Or at least it used to. Nowadays, many people are thinking twice about homeownership. Otherwise, they would be out there bargain hunting, snapping up prized houses at rock-bottom prices and record-low mortgage rates, and laughing all the way to the Promised Land.
Today, more than ever, people need to know what makes better financial sense, buying or renting.
That's a problem Steve Rossi faced in the mid-1980s. Fresh out of college, he was told that it would be foolish to buy. But when he looked into the pros and cons of ownership vs. renting, "all I got was bits and pieces," he recalls. "Nobody really had the whole picture."
So Rossi turned to his older brother, John, a computer specialist, and together they wrote a program that answered Steve's question: After six years as an owner, he would turn a profit.
"How long you stay determines whether or not ownership will be profitable," Steve explains. "If you buy today and sell tomorrow, you are going to lose money. But the longer you live there, the more it pays to buy."
Steve still lives in the Annandale, Va., house he bought 26 years ago. By day, he and John work for Uncle Sam. By night, the brothers have turned Steve's dilemma nearly three decades ago into a nice little nighttime business telling anyone who asks how long it will take his or her house to make money.
Years ago, most people came to the Rossi brothers through the Learning Annex, a Washington-area open university where they taught the class "To Buy or Not to Buy-That Is the Question." But now, thanks to the Internet, their reach is much wider. In fact, it doesn't matter where people live. If they can answer some basic questions and have $10 to spare, they can tell find out when they will reach the break-even point.
When the Rossi brothers first started, they needed answers to 17 questions, things such as how much you expect to spend on utilities, insurance and maintenance, and where people would put the money if they don't invest in a house.
Now, they've pared their questionnaire down to 13 items.
The simplified "Buy or Not Buy" questionnaire doesn't ask what people spend on utilities-their computer program adjusts for that automatically-but it still wants to know what people think they would be earning if they invested in something other than real estate. After all, Steve says, "money spent is money not being invested, so you have to adjust accordingly."
Some of the requested information includes:
* Adjusted gross annual income.
* How people file their federal tax return, as single, married filing jointly, married filing separately or head of household, and how many exemptions they claim.
* The selling price of the home they want to buy, and the downpayment you expect to make.
The rest of the questions are a little tougher. People are also asked, among other things, the property tax rate in the area they intend to buy in, the rate and term of their intended mortgage, the expected rate of appreciation (or depreciation) for the house, the rate at which their income is rising and the rate at which their annual housing expenses will be going up.
People don't need to worry if they can't answer all the questions exactly. The questionnaire has all kinds of prompts along the way, such as "3% is reasonable" when figuring the escalation rate of your utilities, maintenance and insurance. Even if some questions are left blank, the Rossi brothers have done so many of these analyses that they can answer them accurately for people, and all the information people provide is strictly confidential.
There are other programs that claim to do the same thing. But most of those are written for or by realty professionals who would like nothing more than to sell people a house. The Rossi brothers, on the other hand, are completely independent and have nothing to gain whether people buy or not. Indeed, if there is room for bias in their program, it appears to be in favor of waiting.
Potential borrowers can find the brothers at www.tobuy.webs.com. If they contact them and send $10 through PayPal, the brokers will send those potential borrowers the questionnaire. Within two days after its return, they'll receive a personalized printout with a full explanation of every figure.
A[c] 2010, United Feature Syndicate Inc.
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