Rent vs Own (another point of view)

(See video clip below after my commentary or analysis)

This guy makes some very interesting points about the down sides of home ownership; but I think he's still whacked ...  Even though as he points out that your down payment which will be "parked" into your home forever, or used when you trade up to another home, and will not be accessible to re-invest in other ways; and that real estate taxes which you'll pay over the life of your mortgage loan (15 or 30 years) and which are "hidden" in your PITI as part of your total mortgage payment can certainly add up to a large aggregate over the life of that mortgage or ownership interest in the property, along with other maintenance costs -- in the end or final analysis you ARE building equity over time and real estate property ownership is something that can be passed on to an heir; whereas what can you pass-on with rent or a lease?  Nothing !  If you added up ALL the expenses of home ownership (mortgage interest, real estate taxes, repairs, etc) in the end you should still be far better off than with renting and at a minimum break even or have a large gain in equity/appreciation if you ever want or need to sell some time down the road.  The exception to this assumption or case in point about "short sales" is where someone bought at the top of the roller coaster apex of the market, put little to nothing down, had an ARM loan, re-financed or pulled equity out on a HELOC or home improvement project, then the market crashed or receded a bit like the tide; then they could find themselves, as many home owners did in this recession, being upside-down in their loan.  However, like the stock market, if you're in it for the long term and can weather through little dips or fluctuations in the market; in the end you'll come out a hell of alot better (not bitter LOL) than if you were just renting and flushing your money down the toilet each month.

One can also get a life insurance policy to pay off the mortgage in the event of an untimely passing; then any children or heirs, or surviving spouse, can own the home free and clear.   Assuming the average person does not have bundles of cash saved up to invest in other ways or "diversify their financial portfolio", renting affords absolutely no return on investment whatsoever whereas real property ownership does by way of building equity in the property and appreciation. They're not "making any more land" by the way and with MASS immigration and natural population growth an abundance or surplus of real estate parcels for the taking at give away prices or for the "stealing" or homesteading is not going to happen.

Real estate ownership is a long terms investment strategy; whereas what this guy proposes by not owning and renting and using your extra bundles of cash (assuming you have such a nest egg) would be a short term investment strategy. 

Another thing this nut job points out is that with career changes, TDY's or relocations; renting does afford you the opportunity to pack up and leave relatively quickly. Most leases, however, call for a minimum two (2) month advance notice if the tenant wishes to terminate the lease early; but depending on what your lease contract says it does not necessarily mean that you can just up and leave at a moments notice as this guy implies.  What about KEEPING your property as an investment and renting it out while your gone ??  Have someone paying your mortgage payments for you and continue building equity in the property, while you rent elsewhere as needed.  Of course being an out of state or area landlord does have it's risks and you may need to appoint a property manager or trusted friend or associate to handle any issues that might come up in your absence, such as that call from your tenant saying there is a repair issue or something.  But with due diligence, selecting the right tenant, and having some funds set aside in an escrow account or savings account in reserves for repairs, to cover for tenant if they are late or cannot pay rent for a month or two, and other property management issues that could arise - it would be far more financially beneficial to rent your place out and keep it as an investment.  Also if you sold just because of a job change or relocation and then went from owner to renter, you could get hit with Capital Gains taxes if you remain a renter.  Funny that this guy didn't even cover these points or that the interviewer didn't ask him or make any counter arguments on rebuttal.     

He makes some very interesting and perhaps valid points about rent vs buy; but I think he's still whacked and off base.  Less stress in renting vs property ownership (as he says) perhaps; but a whole lot less return on your investment with renting too in the long run.

Ok, now watch the video and make up your own mind after hearing what he says and what I have said above....


(if video does not play correctly switch video mode to HD in embedded player)

What an Appraiser Sees

Here is a fairly good, but very basic, understanding of how an appraiser sees things.  This is overly simplified and of course there is much more that goes into a good appraisal that what is shown here; but they do make a very excellent point on making sure the appraiser is knowledgeable and familiar with your particular neighborhood.  I am surprised they did not even mention "HVCC" (Home Valuation Code of Conduct) appraisals.  I have beat this topic like a dead horse here on my blog site, so if you're interested to know all about HVCC just search through my blog archive to see the many articles and videos I have posted about it.

The appraiser here sort of touches on it, but could have brought the point home more clearly by specifically mentioning "cost vs value" in upgrades, updates that a homeowner does.  For example just because you spent $40K on the garage project doesn't necessarily mean that equates to an automatic $40K increase in your home's value.  Same as with the granite counter tops and other kitchen & baths improvements.  The appraiser in this video makes an excellent point about being relative to other properties in your neighborhood.  For example if you have granite counter tops, and everyone else does too in your neighborhood; then that update to granite counter tops you did probably isn't going to get you additional value on that appraisal....

(if video does not play correctly, switch video mode to HD in embedded player) 

How Much Down Payment is Required to Purchase a Home ?

Here's a fairly straightforward answer and video which I have copy/pasted from this source article.  I do not endorse Bank of America by the way who sponsors this "infomercial" on AOL:  (see text of article below embedded video)




The amount of down payment necessary when buying a home depends on the type of loan applying for, such as a government loan like an FHA or VA loan, or a conforming loan from a private institution. In the case of non-conforming loans, which are typically "jumbo loans", the down payment requirement can be 20 percent.

FHA loans are a great way to get your foot in the door with a low down payment as the minimum down payment requirement is only 3.5 percent of the mortgage amount you're seeking. It amounts to a 96.50 percent loan-to-value amount -- but there's a cap on the value (or purchase price) of the home, and that is set county by county. The cap exists mainly because affordability varies in a given area. Los Angeles County, for example, is currently capped at $729,750, whereas most counties around Nashville are capped at $432,500. (See where your county stands.)

Another good thing about FHA loans is that they're open to anyone, regardless of income. Because even those with a higher income might not necessarily have the savings for a sizable down payment. However, FHA does watch your credit score, as would any lender. It may even soon implement a minimum FICO score of 580.

VA loans, which are available for eligible military veterans, have a zero-down-payment option for 100 percent of the loan-to-value, provided that the loan is no more than $417,000. For higher loan values, a down payment would be required and would vary based on the appraised value or purchase price.

Conforming loans, which can have a fixed or variable interest rate -- although most borrowers choose a fixed rate -- are given out by private lenders. Lenders set their own minimum guidelines for this product, but currently Bank of America requires a minimum of a 5 percent down payment for loans up to $417,000 and 10 percent for loan amounts up to $729,750.

There are some exceptions to the minimum down payment, however. A down payment of 3 percent may be allowed if the borrower's income is below the HUD median income for the area where the home is located. And, borrowers can also use a down payment assistance program to have a third-party cover all or part of the down payment.

Given the varying options for a down payment requirement, that doesn't mean that you should go out and plunk down all of your savings on the down payment. Dangani and Melinda moved from Missouri and asked the experts how much cash they should keep in reserve.

The simple answer, says personal finance expert Lynnette Khalfani-Cox, is to not overextend yourself. Homeownership comes with a lot of hidden costs, from the property taxes to homeowners insurance and repairs. And don't forget that you're going to want to decorate. All these costs can add up to thousands of dollars more than you planned.

It's not fun to be house poor -- whether you're young, or retired and living in Florida. Make sure you consider the list price of the house, your down payment and your remaining savings carefully, so that you don't end up letting your house own you instead of you owning it. That would truly be uncomfortable.

Theft of Services ?

I could be on to something here for Realtors. See also my previous blog entry which lays a good foundation for this follow up article.

If there was a Buyer Agency Agreement or Listing Agreement in place which called for X% commission based compensation for professional services (deferred or upon contingency) and the buyer or seller "drove-off" or "walked-out" on the agent after consuming his/her professional services without consummation of a sale (through no fault of the Realtor) could the agent file a criminal complaint under the larceny provisions of a state's criminal law statutes governing "theft of services" or grand larceny  ??  Why should Realtors constantly let the public get one over on us all the time with no consequences or ramifications.  As I have stated previously and in the article referenced above, I know of no other licensed profession, trade or occupation which allows the public to "screw" us time and again and go scot-free

Why should we as agents be doing "pro bono" work for the public and not be reimbursed for our costs advanced out-of-pocket and not be compensated for our investment of time, resources, energy and money on a "client's" behalf ?  An attorney or lawyer would bill the "client" for every little push of his pencil, call answered or e-mail; and the hourly par value of an attorney in the Greater Washington, DC Capital area is probably somewhere around $200 per hour.  Why shouldn't Realtors (who are also licensed professionals) also "bill" the client for our professional services or hold the consumer somehow accountable or liable for compensating us something for our time, energy and resources on their behalf ?  Consider the following below:

Code of Virginia § 18.2-95. Grand larceny defined; how punished.


Any person who (i) commits larceny from the person of another of money or other thing of value of $5 or more, (ii) commits simple larceny not from the person of another of goods and chattels of the value of $200 or more, or (iii) commits simple larceny not from the person of another of any firearm, regardless of the firearm's value, shall be guilty of grand larceny, punishable by imprisonment in a state correctional facility for not less than one nor more than twenty years or, in the discretion of the jury or court trying the case without a jury, be confined in jail for a period not exceeding twelve months or fined not more than $2,500, either or both.

Not sure what the "of another" means.  Since real estate commissions are actually paid and due to the real estate broker and not to the agent directly (but then split by the broker and paid to the agent) could "of another" mean the real estate broker who is actually the one who is being stolen from or cheated?
Either way, it appears that "theft of services" IS considered larceny (stealing or theft) and the Virginia Code does not define what "other thing of value" is (such as an earned real estate commission) and that "theft of services" is included as something of value that can be stolen; therefore, [professional] services should also be included as "services"; and not merely limited in scope to trade or communications type of "services". 

What is Larceny under Virginia Criminal Law?

Larceny is the act of depriving someone of the use of, or otherwise stealing or theft of property, goods or money. Shoplifting in Virginia falls under Virginia larceny laws.


Different classes of larceny include:

• Grand Larceny: Theft of $200 or more (Felony)
• Petite Larceny: (Petty Larceny) Theft of less than $200 (Misdemeanor)
• Receiving Stolen Property: Felony ($200 and above) or Misdemeanor (less than $200)
• Theft of Services
• Writing Bad Checks
• Unauthorized Use of a Vehicle

Therefore, if a buyer (or seller) entered into an Exclusive Agency Agreement which calls for the broker/agent being remunerated X % brokerage fee commission for the professional services of the agent (which the broker/agent defers until settlement or closing solely as an accommodation to the buyer or seller and is not construed as a waiver of the brokerage fee commission for professional services); and the buyer or seller do not proceed with consummation of a real property sales transaction through no fault or breach of agency duties and obligations or abandonment by the Realtor agent -- then the buyer or seller person HAS in fact committed theft of services or criminal larceny.  It would not be merely a civil matter to recover any deferred brokerage commission from the deadbeat client; but the act of theft of [professional] services would in fact constitute CRIMINAL larceny.

Your broker will undoubtedly give you the old platitude of "we do not want to damage the good will or name of the business" [by engaging in any such action to recover costs from a "drive-off" or "walk-out" deadbeat client].  Sure... that's easy for them to say because the broker was not the one driving the "client" around showing houses and getting screwed for un-reimbursed expenses out-of-pocket on the "client's" behalf or for the "client's" benefit, or spending money out-of-pocket advanced for a listing with marketing and advertising expenses, open houses, etc.

So, for you agents who have been screwed royally, the only support from your broker you'll probably going to get is rhetorical lip-service moral support. You may want to consider going after those deadbeat "clients" in small claims or General District Court and/or swearing out a criminal complaint for "theft of services" ....  In order to prevail, however, make sure you have an iron clad Agency Agreement contract form with stipulations concerning the brokerage fee commission (that is earned when professional services are substantively performed or rendered - but deferred solely as an accommodation to the client and not waived) and a stipulation in your agreement as well which covers buyer or seller defaults under the terms of the agreement along with the remedies for such.  Remember that promises and commitments when working with a client should be bilateral, not just unilateral on you, the agent.

Remember too as I have said in previous blog articles here, that the Association of Realtors board Agency Agreement forms (national or regional) offer no protection for the agent whatsoever and actually allow, condone or facilitate the client being able to drive-off or walk-out on us as they wish with no consequences or ramifications.  That is why I drafted my own iron clad Agency Agreement forms which are perfectly binding and legal.  Speaking of legal... make sure you also specify which state your Agency Agreement contract forms come under the jurisdiction of in the event that litigation, mediation or arbitration are required to enforce any of the terms of your agency agreement contract form with the [deadbeat] client.

If a prospective buyer or seller client is not willing or comfortable signing an Agency Agreement form with you, as their exclusive agent, which provides for fair and just compensation and remuneration for your professional advise and counsel; and the expenditure of your time, resources and out-of-pocket expenses on their behalf; then that should be a clue for you to perhaps not work with that person or those people.  If they are truly SERIOUS about buying or selling their home or trading up, and have confidence in selecting or choosing you as their agent (based on your past performance and track record of success as is evidenced by your client testimonials or referrals) then there should be no legitimate reason why they should not execute such an agreement with you which calls for bilateral accountability and performance under the terms of the agency agreement contract.  The Agency Agreement contract form should be a welcomed and embraced affirmation of your mutually beneficial working relationship with each other and promises or commitments with and to each other.

Think of it like a marriage contract or certificate or an exchange of vows.  Why should you, the agent, be the only one making promises and commitments of fidelity ?  Shouldn't the client be loyal and faithful to you as well ?  If they want a "divorce" through no fault of yours or want to just walk-out or drive-off on you; shouldn't they have to pay for something for Heaven's sake as an "alimony" payment to you ?  LOL  : )