When I tell people that I’m taking classes at Brooklyn Real Estate Institute, they always tell me about how hard it is to find a good apartment in Brooklyn. The first thing I ask is always if they are looking to rent or buy. If you decided to start a career in real estate, you’ll probably have many clients who can’t decide whether to rent or buy. I’m going to spend some time this month to go over the pros and cons of both options.
When looking at a purely financial numbers game, whether to rent or buy is usually influenced by how long your clients intend to stay in one place. During my courses at Brooklyn Real Estate Institute, we learned about what’s called a “break-even” point. Usually, the amount your clients will pay to rent a property is more than what they would pay if they had a mortgage on the same property. In addition, property owners accumulate equity if their property appreciates in value and as they make payments on their mortgage principal. Accumulated equity and savings on mortgage payments are offset by the extra costs (like broker fees, taxes, and other expenses) that come with buying real estate. The point in time where equity gains and the savings in mortgage payments catch up to the cost offset is the break-even point. The break-even point varies for every property, but properties in Brooklyn can easily take 6 years to break even. With that in mind, whether to rent or buy could depend on how long your clients plan to stay.
Another aspect of how long your clients plan to stay is how quickly they would like to move. That is, how much they value the ability to get up on short notice and find a new residence. If they own a property and are unable to sell it, they might be forced to stay longer than they would like.
One of the biggest perks of buying is ownership. Actually owning a property can have both financial and psychological benefits. In terms of finances, the benefit is that a portion of every payment made towards a mortgage builds up equity in a property. A property can appreciate (or depreciate) in value and that change in value belongs to the owner. In addition, after 30 years of rent payments, your clients will still have zero property and zero equity.
Other benefits of ownership are psychological. There are certain benefits associated with owning a property, both internally and in society. Internally, ownership can provide a sense of security and fulfillment. The ability to modify, improve, or customize a property is both practically and emotionally appealing. Individuals may feel that ownership, just like graduating from college or starting a career, is an essential step in their personal development. From a societal perspective, ownership in some situations is a sign of status and success. Your clients might be concerned about their reputation and appearance and how owning or renting a property could affect that.
Whether your clients decide to rent or buy, courses at Brooklyn Real Estate Institute will help you know how to help them get the perfect property for their needs.
