CONTACT PAUL DECARLO
(205) 677-TIME (8463)

SEARCH FOR RENTAL PROPERTIES HERE: www.liveinalabama.com (Change the category to "Rental".)

To Rent or to Buy?

You might find my answer somewhat surprising. I’m a Realtor who believes that providing clients with candid information backed by experience and knowledge is the most ethical and professional way to address this decision.

I have reviewed hundreds of closing settlement statements (known as a HUD-1) and utilize actual numbers to help compare core data for your benefit.

Let’s look at this from a renter’s point of view first. When you move in to a rental property, you typically have to put up money for the following:

• Refundable deposit to the Landlord
• Refundable deposit to utility companies
• Non-refundable processing fees
• Renter’s insurance
• And of course, your pro-rated rent

Factoring in the rent for a 12 month lease at $975.00 per month and renter’s insurance at $25 per month and you’re paying one grand a month that you won’t ever see again.

Over a year’s period of time, you’ve spent $12,000. This doesn’t count, of course, utility bills, phone bills, and other expenses you might have whether you own or rent.

Now, let’s compare this to the most common loan type: FHA - loans insured by the Federal Housing Authority. These loans require a minimum of 3.5% of the purchase price as a down payment.

Home price? $200,000. Interest rate and terms assumption? 4.75% for 30 years. You’re looking at a $1,007 per month payment. Your insurance and taxes are going to be estimated here and can vary greatly. We’ll use Shelby County – Alabama’s average for this price of home and assume a $975 per year insurance and $1,100 per year property tax.

Escrowed into the payment and you’re now at a $1,180 per month payment. (Escrow means that your lender will hold a portion of the taxes and insurance for you throughout the year and make your property tax and insurance payments for you automatically.)

Remember the $12,000 you spent in our example above for renting? Let’s compare now to the first 12 months of owning.

• Interest paid: $9,103
• Closing costs paid: $5,790 (Call me for a breakdown of these charges.)
• Insurance: $975
• Taxes: $1,100

TOTAL: $16,968

Now, you might receive some of the interest back in the form of a tax deduction. Let’s say it’s 25%. That estimate puts you at $2,275. So the estimated adjusted total is $14,692 for the first year. Don’t forget that you’ll have additional costs when you go to sell your home whether you use a real estate agent or not. And another note, I didn't figure any costs of home and lawn maintenance here - or the cost to a home owner association...

All the math and estimates might seem confusing, but it’s pretty clear once you begin to plug in the actual numbers as you move forward with a purchase or a lease. If you want some help as you make a decision whether to rent or buy, let me know and I’ll walk with you through it quickly and easily. I like to use two columns on a simple sheet of paper to identify all the fees and costs for both options. Let me know the property you’re considering to purchase or rent and we can remove many of the hypothetical scenarios.

I routinely tell my buyer clients that in most cases, it’s best to rent if you’re only planning on living in the area for a year or two. Unless you snap up a property well below market value, it’s tough to recoup the costs of home ownership in a year or two. Let me share the facts and the estimates with you for each property you’re considering purchasing or renting so you can plan for the future armed with the best knowledge available.

Sincerely,
Paul A DeCarlo, SFR
Realtor®
RE/MAX Southern Homes

(This application filled out AFTER speaking with Paul DeCarlo!) Rental Application (PDF) (NOTE BELOW BEFORE YOU FILL THIS OUT!)

RE/MAX SOUTHERN HOMES DISCLOSURE:
RE/MAX Southern Homes and Paul DeCarlo, are not providing any property management services for this property or Landlord or Tenant. All payments and checks to be delivered to Landlord or Tenant as stated in the Lease Agreement made solely between Landlord and Tenant.

All property related questions and other issues regarding the Lease Agreement are to be handled exclusively between and by Landlord and Tenant. Landlord is advised to perform credit checks and background checks deemed appropriate or necessary by Landlord.
Landlord and Tenant agree to defend, indemnify and hold harmless RE/MAX Southern Homes and Paul DeCarlo, against and from any claims, suits, damages, losses or other costs or expenses (including court costs and attorney’s fees) relating to, arising out of or in connection with any actual or alleged inaccurate or incomplete information, unlawful restrictions or violations, or any disagreements arising from the terms or lack thereof associated with the Lease Agreement by Landlord or Tenant.