Wait and Rent or Act and Buy?

This is the rent versus buy example mentioned in the newsletter:

For the buyer here is a sale that closed on 7/28/08 and a buy now vs. a rent and buy and wait for the market to drop scenario:

2,500 square foot home rental value $1,500 per month x 12 months = $18,000 rent plus an extra move for $2,500 for a total out of pocket of $20,500 (if you do this for 2 years the numbers the cost is about $38,500). Purchase today with 10% down or $31,000 your P.I. payment will be fixed @ $1,730 per month.

Now in one year assume that the home has lost 10% value and rates have moved as expected .5% up the new P.I. will be $1,665 per month. You saved by waiting to buy 1 year $63.00 per month but you spent $18,000 to rent so you could get a “real deal”. The landlord said thank you and you will need 23 years to recoup your $63 that you saved by waiting for the market to “drop”. What if rates do not change? It will still take you over 10 years to get even for renting for a year.

Oh, on the same subject which is a better buy? A bank owned home or an upgraded owner occupied home competing with the banks to sell? I think that as a personal home or an investment, you are selling yourself very short by only buying on price today and not looking at the inherent value of upgraded owner occupied homes. As an investor some of the REO’s are clearly great buys but again, if you are buying for the long run, really take the time to look at your long term rental growth or costs to upgrade by looking at some of the owner occupied homes with their upgrades (many of the foreclosed home’s lack upgrades and improvements as the buyers were buying the minimum stripped down homes in many cases). The value of better located homes and better upgraded homes in the future can be counted on to return a better value/rent. Always keep in mind that money is in fact cheap and an extra $10 per day can make the difference between a plain Jane home and a really nice home.