Should I buy or should I rent a home in Los Angeles? The simple answer is if you can you should most definitely buy, but things are more complicated than that.
I am the perfect example of someone who has rented all their life. I do have the excuse of not having stayed in one place too long in my earlier years, but I have lived in Los Angeles a long time. The light bulb went off 22 years ago and I bought. It was the bottom of the market, but it was a terrible purchase and I ended up selling nine months later. This was before I got into real estate. Had I known then what I know now I would have leased the property. The one-bedroom unit I bought has appreciated about $300,000.
Now I am considering buying again and am taking into consideration the following points.
Renting – Plusses
- Renting can give you peace of mind. You are only responsible for paying the rent. If something goes wrong the landlord has to take care of it. If something happens in your life, either financially or personally, then you can just walk away from the rental. The worst case would be having to pay the remainder of your lease commitment in order to do so, although many rentals convert to month-to-month after the first year.
Renting – Minuses
- Rents are extremely high, and availability of good units is scarce. Los Angeles is one of the least affordable rental cities in the country. You can estimate that you will be spending around $1,600 for a single or bachelor, and for a decent two-bedroom, a minimum of $2,500, if you are lucky, but more likely it will be upwards of $3,000. I have rented my current unit for 20 years and estimate that I have given my landlord $250,000 over that time. My rent started at $1,100 and is now about to go up to $2,100.
- You are at the mercy of the terms of the lease. You may not have a pet at the time of leasing but may change your mind and realize that the lease you signed does not allow pets.
- Laws may change. Right now landlords are allowed to increase the rent in the City of Los Angeles by 3% per year, and there is talk of tenants having to pay towards earthquake retrofitting of buildings. Not to mention that newer buildings are metering the water separately for each unit.unit, and landlords may be able to split water bills amongst tenants in older buildings.
- If you do stay in your unit for a while your landlord is will probably not make any upgrades and is likely to do the bare minimum to abide by the law.
- You do not have security. What if the landlord decides to go out of the rental business or want to move their family into your unit.
Buying – Plusses
- You are not paying someone else’s mortgage, you are paying your own.
- As long as you abide by the building rules if you are buying a condo, you are free to do anything you want within reason. Remember that dog you wanted…..
- You are hopefully building equity, especially if you hold onto the property for at least five years. If you were renting for five years at a straight $3,000 a month $180,000 would be gone.
- Buying a home offers the opportunity for a tax deduction. Hopefully, this benefit to home ownership will stay in place and is an additional incentive to buy.
- Pride of ownership. There is nothing like owning your own place and not being held hostage to the fickle fancies of a landlord.
- Aside from the unforeseen, mentioned below, your monthly payments should not rise.
Buying – Minuses
- Never tie up all your cash in a home. You need to have some liquidity in case anything goes wrong.
- You cannot walk away from a mortgage. Well you can, but it would not be advisable.
- Maintenance and repairs. You will definitely need to budget for any unforeseen problems.
- Homeowners dues. If you are buying a condominium you will have monthly dues which are not tax deductible, and you have no idea when the Board may tack on an assessment for work or improvements that need to be done.
Bottom line, it would be worth sitting down with a mortgage broker and a financial professional to work out what really makes sense for you. Buying is not for everyone, and it was certainly not for me for a long time. But if you have the downpayment, good credit, and a reasonably steady income, buying is certainly an option you should investigate, especially given today’s rental market.
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