THE TIME OLD QUESTION - RENT OR BUY?

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.

Length of Stay

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.

Ownership

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.

The "Bad" Real Estate Market

So I was out having lunch with a friend last weekend. As we were talking, I mentioned that I was beginning a career in real estate. She did the classic “Oh. That’s nice.” response and then said what most of my friends say when I tell them I’m working in real estate: “Isn’t the market really bad right now?” Since I’ve been getting that response a lot, I figured I’d clarify once and for all.

One of the first things that I learned while taking courses at Brooklyn Real Estate Institute is that it doesn’t matter so much if the market is good or bad, it’s all about reading the market. If you know how to read the market, you can figure out which way prices are going and plan your strategy accordingly.

The Good
This one is easy. If the market is good, prices are stable or going up. People are building, buying, and selling property. Banks are lending. The key here is to not get lured into ridiculous purchases. Being able to gauge the value of a property is essential to avoiding the euphoria of a “good” market. At Brooklyn Real Estate Institute, they taught us to identify key factors influencing a property value, including how to analyze current and past listings. We learned how to read an appraisal and how to recognize when the appraisal might be more or less than what you can expect to get for the property. Using these strategies, I can avoid investing in a property that isn’t likely to give out a return.

The Bad
Just because prices are falling, doesn’t mean you can’t make a profit. In fact, the mass hysteria caused by a “bad” market can actually help you make money. At Brooklyn Real Estate Institute, we learned that emotions play a heavy role in the decision to buy or sell property. Fear and worry can cause people to sell for less, especially if they are anxious to complete the transaction. Picking up a property at a great price and holding onto it until the right moment can be a great way to cash in.

Another option to make money when the buying market is struggling is to focus on commissions from rentals. If the market is bad, people sometimes turn to renting because they don’t feel good about purchasing a home. As rental demand increases, there’s plenty of opportunity to rake in on commissions.



The Ugly
Of course, the only truly ugly market is the one that you can’t predict. Thanks to my courses at Brooklyn Real Estate Institute, I can recognize where the market is and see clues as to where it is going. This lets me make money no matter what the market is doing. That’s why I love real estate!