Renters Add Up the Numbers, Find the Answer Is: Buy

OK, we all know by now that the residential real estate market has basically collapsed in the San Fernando Valley and elsewhere. For some renters, though, the current market is turning into a great buying opportunity.

The so-called affordability index--which measures the percentage of people who can actually afford to buy an average home--has been climbing pretty steadily over the last two years. That’s thanks to prices and interest rates coming down in tandem.

Joey P. Hardwick was renting a home in Burbank for six years when she decided on a move to Granada Hills. Her priority was being within a two-mile radius of the high school she wanted to send her son to. Several homes for rent ranged in price from $1,100 to $1,200 a month. Instead, Hardwick decided to buy. And she moved in.

Her monthly payment for a three-bedroom home in the same Granada Hills neighborhood--including taxes and insurance--is just $1,250. And considering that nearly all of Hardwick’s mortgage payment is interest, and therefore tax deductible, for her it makes owning a house less expensive than renting one.

“It’s ridiculous to throw the money away on rent when you can make the same monthly payment and be a homeowner,” Hardwick said.

She also had to consider the loss of interest income on the $35,000 she used for a down payment, but Hardwick decided it was offset by a savings in federal income tax and her belief that home prices will eventually start going up again.

“I tried to be as practical as possible, working with the numbers all the time,” said Hardwick, who is a single mom and an accountant. “It was important for me to know where all the money was going.”

Tim and Linda Gocha also decided to stop renting and move into a new home this month.

“We figured we could pay just a little more and have a house. It’s not as big a jump from our rent as it was before,” said Linda Gocha. Instead of paying $700 a month in rent for their three-bedroom apartment in Burbank, the couple and their two children will be living in a three bedroom home of their own for about $1,000 a month. Their $109,000 home is part of California Horizons in Lancaster, a development by Kaufman & Broad. The Gochas’ move-in costs, including down payment, points and other fees, totaled $6,600.

On the same day that the Gochas decided to buy, Linda’s brother, Bill Crowell and his wife, Sylvia, decided to do the same. Now the two couples are just five doors away from each other.

“Why pay rent when you can have ownership in something?” said Shelly Klimusko, a senior loan officer at Metro Citi Mortgage in Encino. Lenders are being tough, she acknowledged, but “a lot of people are trying to come into the market with less that 20% down.” Many of her loans to first-time home buyers, she said, are in fact closing with 10% down or even less.

The first thing people should do, Klimusko said, is look at how difficult or easy it is to make their rent payments now. The next step, she continued, is “you need to determine how much cash you have for a down payment.” Another factor to consider is how long you plan to live in the area where you are contemplating a purchase. It isn’t feasible these days to buy a home and “flip” it within six months or year. Buyers need to think in the long term, she said. “It depends on long-term goals.”

Because of low-interest rates and depressed real estate values, the final cost of owning a home is down significantly, Klimusko said. Renters who compare their current rent with PITI--principal, interest, property taxes and home insurance--may find that the net cost of ownership isn’t much more than the monthly rent check. Klimusko and her company made just such an accounting for renters at a Chatsworth apartment building that was going condo.

“We calculated that for $50 to $100 a month more, the residents could own versus rent.”

“Most people aren’t in tune with all the tax advantages of owning their own home,” said Lorrie Griffey, president of the San Fernando Valley Board of Realtors and a broker at Pinnacle Estate Properties Inc. in Northridge. “They know that their mortgage interest is tax deductible, they don’t know by how much.” It’s important, she said, to consider all the costs associated with renting versus buying.

Griffey suggests calling a broker and making use of a computer program offered through members of the San Fernando Valley Board of Realtors called The Real Cost of Home Ownership. Prospective buyers can enter their tax bracket, income, current rent, amount of down payment available and other factors that affect the final numbers comparison.

Buyers need to consider where else they could invest their down payment if it was available for something other than a home. What kind of inflation is expected over the next few years? Which way are interest rates headed? Is your current apartment rent-controlled? Are you ready for a longer commute? Do you have the patience to take on the responsibilities of home ownership?

Some of these questions have easy answers. Some are personal in nature. Others are anybody’s guess.

“Calculating the numbers can get very complex,” Griffey said. “All the variables make a big difference.”