Deciding between buying vs. renting a home is among one of the biggest financial decisions you can make. Of course, whether you decide to purchase or rent depends largely on your personal circumstances, finances and your family’s needs. There are tremendous benefits to buying your own Laguna Beach real estate over renting a home (beyond the obvious concerns about a future landlord not allowing your treasured pets and having the freedom to decorate and paint your new abode however you chose).
Because the costs of buying are more varied and complicated than renting, it can often be difficult to determine which path is better for you. Let’s take a look at some of the considerations you should make prior to contemplating a purchase over renting a home.
Buying a Laguna Beach Home
Real Estate is a great long term investment. Your rate of return when buying a home is higher than almost any other investment. Homes in California have appreciated about 5.77% year over year. Appreciation matters because it can make the difference between whether it’s better to buy or rent. In Laguna Beach, the five year average appreciation rate was 7.56% ending December 2016. That’s an incredible rate of return on a Real Estate investment.
Rental rates have also increased due to supply/demand and prices depend primarily on location and property size (number of bedrooms/baths). But landlord motivation, property condition (whether it’s a new remodel or cottage with character!) and season will determine what rentals are listed at – check with one of our Laguna Beach Real Estate team experts to guide you.
The rate of return when purchasing a house is considerably higher than almost any other investment you can make. Homes traditionally appreciate about 5% percent a year nationwide – although the appreciation along the Laguna Coast over the past few years has been unprecedented – where rates have been as high as 25%!
With demand for housing staying strong – it has created a state of permanently higher prices. The median home price in Orange County in December 2016 was $630,000 – the highest since the Recession and the highest median price for any month in over eight years – up 8.2% year over year since December 2014.
Even if you consider real estate appreciation at a very conservative 5% – if you bought a $630,000 home (and put 20% down, an investment of $126,000) the property would increase in value $31,500 in the first year. That means you would earn $31,500 with an investment of $126,000, therefore your annual return of investment would be an incredible 25%. And, since both the interest on your mortgage and your property taxes are both tax deductable, the government is essentially subsidizing your house purchase! Clearly the smarter option is BUYING over renting!
Beyond the very lucrative investment of owning a “tangible” investment that you live in, a home is like an automatic savings account, accumulating savings in two ways: Each month a portion of your payment goes towards the principal – paying down your loan – while it appreciates over time. Plus, you get the benefit of any improvements you make (and most of these improvements are also tax deductable!).
There are various costs that go into buying a home, and some that are not so obvious. To ensure that you have a good grasp of what is expected – and to compare apples to apples – let’s breakdown the costs associated with buying and renting a home.
- Initial Costs for a purchase: Home Inspections, down payment, escrow fees, title fees, taxes, insurance and other closing costs need to be considered in addition to the Sales price. An escrow officer can be consulted to assess these costs and a lender will breakdown the cost of your loan, as well as any additional closing costs and fees on their end.
Initial Costs for a Rental Home: When renting a home, the initial costs include rent and security deposit. You will also need to provide an application which will also require a credit/background check. Comparatively much easier than a home purchase, but your hard earned cash will go straight into a landlord’s bank account, no return on investment for you here.
- Recurring Costs for home purchase: These are the expenses you will have to pay month-after-month in owning your home. Mortgage payments, condo or homeowners association fees (if applicable), maintenance and renovation costs, property taxes and homeowners insurance are just a few of the traditional recurring costs. It should be mentioned that property taxes, the interest part of your mortgage payment and, in some cases, a portion of the common charges are tax deductible. The tax savings should be considered when comparing buying to renting.
Recurring Costs for a Rental Home: The monthly rent and the cost of renters insurance. Also utilities that will not be covered by landlord (sometimes landlords will include water, gardening, trash and HOA fees, if any). Typically renters will be responsible for their own gas, electric and cable/internet charges.
- Net Proceeds property ownership: This is the amount of money you’ll receive should you choose to sell your home, minus the closing costs (which includes the broker’s commission and other fees, paying the remaining balance and any taxes you owe).
No return for a Rental: The return of your security deposit (with no interest), which typically occurs at the end of the lease.
The Laguna Beach Real Estate Market
Living in a coastal community can be an enticing option and Laguna Beach provides a rich lifestyle with it’s spectacular beaches, creative and artistic festivals, world-class restaurants and blue ribbon schools. One of the biggest considerations on where to move will be the availability of homes that meet your desired criteria in your targeted area. Be flexible – you might need to expand your range in terms of location and price to determine what is most suitable for your needs.
The decision to rent or buy ultimately boils down to your personal preferences, amount of savings and financial qualifications, and how comfortable you are moving forward. Buying a home is a great option if you are looking for an excellent investment – one that will likely continue to pay off for years in the future.
On the other hand, if you’re planning on staying in Laguna Beach for a short period of time or financially don’t have the means to secure the type of luxury home you want to purchase, there are some exceptional rentals available throughout the beach communities to call home – until you decide on the perfect “investment” home!
Let the Laguna Beach Real Estate Experts Help
Because our team at Laguna Coast Real Estate specializes in both Coastal Properties For Sale and Coastal Rentals, it would be our great pleasure to discuss your buying and renting options with you in detail. We are always available for consultation and have years of experience helping homebuyers and renters find the Laguna Beach properties that best suit their needs. Connect with our team today to learn more. We look forward to hearing from you soon and hope you’ve found this information to be helpful in making your decision.