NMS Residential Weighs in on Renting vs Buying in LA

LOS ANGELES, CA / ACCESSWIRE / May 29, 2018 / To rent or not to rent? Finding the right plot of land to call home is a question with complexities to rival a Shakespearean plot. Many home-searchers in areas like Los Angeles are facing one big complexity in deciding to rent or buy – affordability, both in the short and the long term.

Renting and buying each has their own pie chart of pros and cons. Buying, for example, is a long-term, stationary financial commitment that many simply are unable or unwilling to make. Renting, on the other hand, can be an unrewarding financial investment over the long term, leaving you empty handed in ownership at the end of the day. However, in some cases, renting can eventually enable easier and more rewarding home ownership in the future.

Making the “right” decision on renting versus buying is ultimately relative to each unique home-searcher. That is, there’s no universal right or wrong answer. You must look at the decision from a standpoint of which makes the best financial sense for your own financials. Due diligence from a financial perspective will be key in making the wisest, most beneficial choice possible.

Luckily, you have some nifty tools, like those from The New York Times and Zillow, to help you with your due diligence. Knowledge is power and when it comes to making a potentially life-altering decision, it pays to do research instead of just listening to the opinions of well-meaning friends, colleagues, and family members.

Zillow is an online real estate database offering buying, selling, renting, financing, remodeling, and so forth applications and tools to help users make informed and streamlined decisions. They offer the Zillow Calculator, which can be used to determine your break-even point, or when renting becomes more expensive than buying a house. This is based on gained equity. You basically have access to more of a home’s total value in selling as you pay off more of it. The New York Times offers a somewhat similar tool.

Given equal potential rent payments and mortgage payment amounts, buying a house is more financially rewarding if the future selling price earnings amount to more than you would’ve earned in renting and putting whatever down payment you would’ve made into an investment fund. Such an investment fund is how many find that renting enables them greater future buying power when it comes to investing in a home.

Los Angeles apartments average $2,000 a month, per an article by prolific real estate blog, Curbed LA. Let’s say you instead buy a $580,000 home in Los Angeles County, which is considered a median-priced home in the area. It will take you 5.7 years to hit the break-even point of buying paying off over renting. With rent being $3,000 in the scenario, the break-even point would be 2.8 years. With rent being $1, 500 or less in the scenario, there would never even be a break-even point. So, as you see a higher lease or lower mortgage vastly affects the break-even point.

Beyond the rent to mortgage break down of break-even points, buying a house involves the buyer making a lump sum down payment, which is typically 20%. That’s almost $120,000 for the median home price of $580K.

Eric Sussman, adjunct professor of real estate and accounting at UCLA, says that not having such large lump sums of money laying around for a down payment is one reason why buying a home isn’t just as simple as which pays off the best. Other factors, such as obligation and how much a home-seeker has been able to save is also at play in the rent vs buy decision.

Given excellent credit and other lending facets, some buyers can get around the 20% typically required as a down payment but doing so means a higher monthly mortgage that can affect the affordability. It can also affect the viability of the break-even figured in that there will be less equity out of the gate. Sussman points out that less than 10% down often leaves the new homeowner with a hole in their balloon, or rather in a situation where they owe more than the home is worth in resale.

Such a hole in the balloon doesn’t mean that it doesn’t make sense for some people to go ahead with a purchase if they have the opportunity to buy with lower up-front costs. It could still be the financially prudent decision for those stuck with high rental payments, for example. If you think your rent is so high that it makes better sense to buy, you can use the New York Times Calculator to confirm.

Accounting for mortgage interest rates, the NYT calculator found that those paying more than $2,536 in Los Angeles rent would be better served to buy a median-priced home. Sussman, however, still says that renters in LA may be better served to wait out high home prices and save for higher down payments through affordable renting.

Analysts are predicting the market will better favor buyers in the next 12 to 18 months. Patience can be a homebuyer’s biggest due diligence asset in the real estate market, but that doesn’t mean homebuyers shouldn’t keep proactively looking. And, timing is highly dependent upon what a homebuyer is looking for in a home. With solid finances, the right home, and an expectation to stay in the home at least five years, Sussman says to go for the buy. Otherwise, it may make more sense to wait the market out or continue to rent.

ABOUT NMS RESIDENTIAL

NMS Residential is a privately owned real estate management firm specialized in the professional management of upscale multifamily and mixed-use properties throughout the Greater Los Angeles area. Led by a seasoned team of executives with multidisciplinary backgrounds, NMS Residential’s ever-expanding portfolio includes over 18 market rate properties located in Santa Monica, Westwood, Brentwood, the San Fernando Valley and beyond. Throughout our portfolio, we are committed to providing an exceptional living experience for our residents. Our communities feature thoughtful floor plans, exceptional amenities, and boutique-level services.

OUR COMMUNITIES

At NMS Residential, exceptional design, professional service, and luxury living are our highest priorities. Our commitment to quality is visible in everything that we do. That is because we don’t just manage apartments, we curate vibrant communities in desirable locations throughout Los Angeles.

From contemporary residences in Santa Monica to furnished apartments in Westwood, NMS Residential apartment buildings add character and prestige to their neighborhoods. Located in some of the most desirable areas in the county, our Los Angeles, and Santa Monica, CA apartments feature carefully crafted design, stunning interiors, luxury amenities, and top-quality finishes, to provide residents with an unparalleled lifestyle.

Explore our extensive portfolio to see why NMS Residential represents the new standard of Los Angeles apartment living.

SOURCE: NMS Residential

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