Buy vs. Rent

By MICHELLE HARRIS
Special to The Sun

8:29 pm, September 12, 2007

For Warren and Mary Dance deciding to buy instead of renting an apartment for their two college-age sons was a no-brainer.

Warren Jr., 20, a third-year sports management major, and Richard, 19, a sophomore majoring in pharmacy, both studying at the University of Florida, will be here for the next several years.

"We're both planning on going to graduate school," said Richard Dance.

Meanwhile, graduate student Hannah Siburt knew she and husband Mark, a horticulturist for the City of Gainesville, would be renting when they relocated to Gainesville in 2005. On her last year in UF's audiology program, Siburt is already setting her sights on moving.

"We didn't feel it was worth buying for that amount of time," she said.

With interest rates still relatively low, alluring pricing packages and a large selection of new and conversion-condominiums, buying instead of renting has become a more viable option in today's housing market.

Beginning in 2007, declining sales throughout the country left condo developers with an inventory of unsold property.

In some cases this has lead to a new trend - "reversion," with condominiums, especially condo-conversions, now being marketed as rentals due to a growing segment of people preferring to rent instead of buy their homes. And in Gainesville, the student population has a definite influence on the local market.

"The market changed significantly from what it had been two years ago," said Ken Mamula, owner of Southeast Florida Development and the developer behind the conversion of Windmeadows Apartments near Butler Plaza to condominiums in June 2006. Lagging sales have forced Mamula to revert to renting the units.

"We had to adhere to the market, and now we're almost 100 percent leased."

The wave of condo conversions started in 2001, said Walter Molony, spokesperson for the National Association of Realtors. The trend peaked in 2005 with nationwide sales of condo-converters at $30 billion out of an $80 billion multi-family product market. In 2006, while multi-family sales rose to $87.4 billion, condo-converters accounted for only $9 billion, said Molony.

"The volume of sales in 2005 was not only unsustainable, but it was beyond what the market forecast was able to predict," Molony said.

And the first quarter of 2007 suggests a further nationwide slowing with only $1.16 billion in condo-converters out of $23.2 billion in multi-family sales, he said. Remaining quarters are expected to dip further before flattening out altogether.

In Alachua County, 804 condominiums were closed on between January and June 2006, while only 322 sales occurred during the same period in 2007, according to data from the Alachua County Property Appraiser's Office.

"There is a consumer confidence issue," said Molony of the declining sales. "People want to see more stability in all the indicators, such as the economy and job creation. At the same time, apartment rental rates are rising and vacancy rates are tightening."

"Economic conditions are what normally change people's minds about buying versus renting," echoed Mamula, who recently bid on the purchase of Butler Plaza and several other condominium projects but is holding off on further development at this time.

In Gainesville, it's the condominium market that will take the brunt of the downturn in real estate sales, said professor Wayne Archer, executive director of Real Estate Studies at the University of Florida.

"That's where the real heartbreak is. There is an assumption that with rent, money is being thrown away. The same could be said of the down-payment money," Archer said.

He recommends careful consideration when deciding whether to rent or to buy a condominium, such as the location, quality of construction and how long you intend to live there.

When weighing your options, keep in mind your credit and liquidity, what percentage of your monthly income is already earmarked for other long-term obligations, such as a car, and the down payment you will need.

"In a market like this one, there is room to negotiate," Archer said. While developers are loathe to lower prices, they do offer incentives such as covering all closing costs. Or they may offer a buy-down type of loan where the developer pays the lender, in some instances making payments for up to 24 months.

But any transaction shorter than five years is risky, Archer said; so think long term. And don't even consider buying unless it is with a standard loan. For people who may have a less than stellar credit report, or are short of cash for a down payment, look online into financing options offered by Freddie Mac and Fannie Mae or Home Town Hero programs.

Avoid sub-prime loans, adjustable-rate mortgages with artificially low front-end starter rates or other types of chancy funding, he added.

Finally, compare the monthly expenditures of renting versus buying a home using a cost calculator. This tool will help clarify the yearly outlay of monies needed. For some people, buying may not be the best option.

"There is no sin in renting," Archer said. "Better to rent and live modestly until you can live and do it right."

Online resources:

Web sites for alternative financing options and loan calculators:

www.freddiemac.com - Click on "Buying or Owning a Home" for information and cost calculators

www.fanniemae.com - Click on "Homepath" section for a list of lending partners and mortgage solutions

www.fool.com - Click on The Motley Fool site for advice and related sources in "Homecenter" section

 

For more information contact...

Matt Thomas
(352) 494-0194
MattThomas@BosshardtRealty.com

 

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