Rent vs Own, What to do in California?

Home sales continue to plummet across the state of California as buyers begin to contemplate renting over buying a home as a result of falling home prices. Unlike in Utah, prices in the golden state have taken a beating. Purchasing a property now could result in a loss of tens if not hundreds of thousands for a buyer. While buyers in Utah can easily acquire a Utah Home Equity loan as a means of dealing with unexpected dips in home value, such loans are increasingly difficult to obtain in California.

Frankly, banks do not like losing massive amounts of money by having to foreclose on homes. This leads to higher interest rates and higher down payment requirements which prohibit, or at the very least prevent many potential buyers from purchasing a home in California. Often home buyers decide that it is simply more affordable to rent rather than to purchase a home. Others choose to rent simply because they are frightened off by high interest rates. Second mortgage loans can occasionally be used to pay down a loan early as a means to avoid 30 years of high interest.

Here’s one blogger’s take on the debate:

But what about the tax benefits of owning? Aren’t all renters simply flushing their money down the porcelain toilet of perpetual loserville? First, there is a mistake in believing renting provides no economic benefit. Everyone needs shelter unless you are going the way of the nomad and living under the San Gabriel river. Renting provides the same economic substitute as owning a home aside from tax benefits, equity buildup, and the ability to take a sledge hammer into your kitchen wall should your heart desire. The only problem in hyper bubble markets like Southern California, renting an equivalent place will cost you 2 times less than owning. So for example, you may be able to rent a home for $2,200 that would cost you $4,000 if you were to buy it. And that $1,800 is being invested ideally at a rate outpacing inflation. The way housing is currently going, you’d be better off playing Keno at your local Indian casinos.

This is certainly a valid point. Well, the analysis regarding the cost of renting vs buying is (I wouldn’t advocate the Keno). If one looks at a home as a thirty year purchase with a high interest rate, it could seem like a lifetime liability in which a homeowner can never possibly get out of debt.

Few realize that the proper use of a 2nd mortgage loan could easily reduce a thirty year loan to a 15 year loan. Obtaining such a home equity line of credit can be extremely rewarding for a homeowner who dislikes debt.

October 10, 2007 | Filed Under Get Out of Debt, Second Mortgage, 2nd Mortgage, Home Equity Line of Credit, Utah Home Equity Loan 

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