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josebby

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Here's the article:



The Bottom Line
Weighing Finances and Feelings for a Decision 
               E-MailPrint Reprints Save Share
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By BETH GREENFIELD
Published: December 29, 2006
THE basic question of whether it?s better to rent or buy your second home is one whose answer can always prove elusive, even in a healthy market. And that?s because it?s never solely a financial decision, but an emotional one, too.

?I?ve been in this business for over 30 years and I still can?t answer that question,? said Kelsey Mar?chal, an agent with Sotheby?s International Real Estate in Bridgehampton, N.Y. ?It?s a function both of the market and, more important, people?s perceptions of the market. It?s pretty much up to the individual and their needs ? which are either based on what their accountant told them, or on a lifelong desire.?

Gregg Russo, owner of Atlantic Bay Sotheby?s International Realty in Provincetown and Truro, Mass., says much of it comes down to personality type. 

?The people who can afford to buy into these homes are buying into an idea and a feeling,? he said. ?They want a place that?s familiar, year after year, and know their things are there. They are not renters.?

These are the types of ideas potential renters and buyers should think about before making a decision, said David C. Hehman, chief executive of the second-home resource Escapehomes.com. Other big questions should revolve around potential use patterns for the home, and how realistic they may be. 

?Is it for weekends?? he said one should ask. ?Is it a summer retreat? You may think you?ll use it every weekend, but you have kids and they have soccer, or they?re in high school and they don?t want to go away with the family every weekend.? 

And, he added, ?People tend to underestimate the cost of owning property.? 

So, potential buyers should take a hard look at every single possible expense: purchase price, mortgage interest, maintenance, real-estate taxes, lawyers? fees, condo fees and property insurance, with its increasingly high premiums. 

David Mendels, the director of planning at the Manhattan-based Creative Financial Concepts, took many of these expenses into account while preparing a sample five-year cash-flow spreadsheet for this article. In it, he pitted the purchase of a $300,000 house in Sullivan County in the Catskills area of New York against the rental of a comparable home for $8,000 a season. 

He factored in a 20 percent down payment of $60,000, a fixed 6.6 percent 30-year mortgage, and yearly real estate taxes of $4,000 (which he increased by 4 percent each year). He then allowed for a 4 percent appreciation, plus an income tax rate savings of 30 percent. 

Because of the down payment, a renter would have a first-year savings of $68,978. But to make the comparison fair, Mr. Mendels invested that amount at an expected rate of 5.4 percent ? a move that made the rent-versus-buy spending come out even, after five years. 

?If you could have invested the savings and earned 5.4 or better,? he said, ?then you?re better off renting. If not, then you?re better off buying.? 

But he stressed that the theoretical formula assumed there were no repair costs to the home, and that there were no insurance payments ? both unlikely. It also assumed that there was appreciation, and that the buyer qualified for income tax savings ? also a chancy bet, because of the unpredictable alternative minimum tax, an extra tax some people may have to pay on top of regular income tax. So buying could actually wind up costing much more than renting in this five-year scenario.

Mr. Mendels?s conclusion: ?It?s not a black-and-white answer.?

Here&#039;s the article: 
 
 
 
The Bottom Line 
Weighing Finances and Feelings for a Decision 
 E-MailPrint Reprints Save Share 
DiggFacebookNewsvinePermalink 
 
By BETH GREENFIELD 
Published: December 29, 2006 
THE basic question of whether it?s better to rent or buy your second home is one whose answer can always prove elusive, even in a healthy market. And that?s because it?s never solely a financial decision, but an emotional one, too. 
 
?I?ve been in this business for over 30 years and I still can?t answer that question,? said Kelsey Mar?chal, an agent with Sotheby?s International Real Estate in Bridgehampton, N.Y. ?It?s a function both of the market and, more important, people?s perceptions of the market. It?s pretty much up to the individual and their needs ? which are either based on what their accountant told them, or on a lifelong desire.? 
 
Gregg Russo, owner of Atlantic Bay Sotheby?s International Realty in Provincetown and Truro, Mass., says much of it comes down to personality type. 
 
?The people who can afford to buy into these homes are buying into an idea and a feeling,? he said. ?They want a place that?s familiar, year after year, and know their things are there. They are not renters.? 
 
These are the types of ideas potential renters and buyers should think about before making a decision, said David C. Hehman, chief executive of the second-home resource Escapehomes.com. Other big questions should revolve around potential use patterns for the home, and how realistic they may be. 
 
?Is it for weekends?? he said one should ask. ?Is it a summer retreat? You may think you?ll use it every weekend, but you have kids and they have soccer, or they?re in high school and they don?t want to go away with the family every weekend.? 
 
And, he added, ?People tend to underestimate the cost of owning property.? 
 
So, potential buyers should take a hard look at every single possible expense: purchase price, mortgage interest, maintenance, real-estate taxes, lawyers? fees, condo fees and property insurance, with its increasingly high premiums. 
 
David Mendels, the director of planning at the Manhattan-based Creative Financial Concepts, took many of these expenses into account while preparing a sample five-year cash-flow spreadsheet for this article. In it, he pitted the purchase of a $300,000 house in Sullivan County in the Catskills area of New York against the rental of a comparable home for $8,000 a season. 
 
He factored in a 20 percent down payment of $60,000, a fixed 6.6 percent 30-year mortgage, and yearly real estate taxes of $4,000 (which he increased by 4 percent each year). He then allowed for a 4 percent appreciation, plus an income tax rate savings of 30 percent. 
 
Because of the down payment, a renter would have a first-year savings of $68,978. But to make the comparison fair, Mr. Mendels invested that amount at an expected rate of 5.4 percent ? a move that made the rent-versus-buy spending come out even, after five years. 
 
?If you could have invested the savings and earned 5.4 or better,? he said, ?then you?re better off renting. If not, then you?re better off buying.? 
 
But he stressed that the theoretical formula assumed there were no repair costs to the home, and that there were no insurance payments ? both unlikely. It also assumed that there was appreciation, and that the buyer qualified for income tax savings ? also a chancy bet, because of the unpredictable alternative minimum tax, an extra tax some people may have to pay on top of regular income tax. So buying could actually wind up costing much more than renting in this five-year scenario. 
 
Mr. Mendels?s conclusion: ?It?s not a black-and-white answer.?

SHELLY

SoWal Insider

[quote="josebby, post: 189134"]
Mr. Mendels’s conclusion: “It’s not a black-and-white answer.”[/QUOTE]

[B]In a lot of cases it's a black-or[COLOR="Red"](-red)[/COLOR] answer.[/B]


.

<blockquote class="xfBb-quote" data-name="josebby">Mr. Mendels’s conclusion: “It’s not a black-and-white answer.”</blockquote> 
In a lot of cases it&#039;s a black-or(-red) answer. 
 
 
.

goofer

Beach Fanatic

Excellent article in today's NY Times.


[url]http://www.nytimes.com/2006/12/29/realestate/greathomes/29rent.html?_r=1&oref=slogin[/url]

Excellent article in today&#039;s NY Times. 
 
 
<a href="http://www.nytimes.com/2006/12/29/realestate/greathomes/29rent.html?_r=1&amp;oref=slogin" target="_blank" class="link link--external" rel="nofollow ugc noopener">http://www.nytimes.com/2006/12/29/realestate/greathomes/29rent.html?_r=1&amp;oref=slogin</a>

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