When the housing bubble burst in 2006, the cost of buying a house - as compared to renting - was considerably higher in most areas. Today, the opposite is true in many states, particularly those hit hardest in the housing crash: Arizona, California, Florida and Nevada – and right behind them, Illinois, New York and New Jersey.

Where It’s Cheaper to Buy

In many communities within these states, as rental cost has continued to be on the high side, it is now becoming more monetarily advantageous for renters to buy a comparable home whose value has dropped 30% (national average) from the highs of 2006. Dropping home prices, high rental cost, coupled with historically low interest rates, makes this an ideal time for renters to consider buying.

A recent study by Deutsche Bank reported that the share of income Americans are now paying to own their homes is 9.8% of their income in after-tax mortgage, taxes, and insurance payments. This is down from 17.2% at the housing bubble’s peak. Conversely, the study went on to say that in 28 out of the 54 major markets, it’s now cheaper to pay a mortgage and other major housing costs than to rent the same house.

A recent Fortune magazine article described the typical experience of a couple whose rental cost was increasing to $2,700 a month, while home values were decreasing. They took the time to research the market and determined that they would be able to purchase a townhouse for between $400,000 to $500,000 and pay less per month for a mortgage.

Making the Decision

Making your own buy vs. rent analysis is not difficult. Essentially, you’ll start with the total cost to you of renting a home or apartment you’re comfortable with. The word “total” means not only the rent, but any related cost such as tenant’s insurance, and maintenance and/or association dues. That’s your starting point - your base for comparison.

The next step is to determine the cost of buying comparable housing, and here you need to do a little research. First, look at the houses for sale in your price range and find out what similar homes have been selling for recently. A local Realtor can help you out in this regard. Once you’ve got a good idea of the price of the home you want, ask the Realtor what you can expect in the way of real estate taxes, utilities and insurance cost for a home at this price. Lastly, talk to a local bank or mortgage broker to ascertain the availability and cost of the mortgage you will need in order to buy your home.

Real Estate is Local in Nature

Always remember, real estate in local in nature. National, regional and municipal markets are all “macro markets” made up of thousands of micro markets of specific communities, neighborhoods and price ranges whose market conditions can vary significantly from the macro markets in which they exist. Even in distressed market areas there are almost always little micro markets that are fairly healthy.

Upon the expiration of a lease, your rental leasing firm will perform a thorough inspection of the property, comparing the condition of the home with that noted on the original Condition of Premises Inventory (and Condition of Furnishings Inventory, if applicable).

The Condition of Premises Inventory (and Condition of Furnishings Inventory, if applicable) should be signed by the tenant and appended to the lease agreement.

Collection of the monthly rent should be the responsibility of your rental leasing firm, and the lease should specify that payments must be received at that firm’s address on or before the first day of each month. The agreement should also specify a late payment that will be due should the rent deadline be missed.

When you move out, the rental leasing firm should prepare a checklist indicating the condition in which you are turning the property over to them. The leasing agent should conduct a walk-through with you, indicating any visible damage and notable signs of wear and tear. The report should be accompanied by photos where appropriate.

The lease agreement is the key document that spells out the duties and obligations of both tenant and landlord, and lists and describes any restrictions to the tenant’s occupancy. Remedies for breaches of the agreement and methods by which such remedies are applied must also be spelled out clearly.

Keys, Entry, Inspections
The lease should specify that you will maintain duplicate keys to all locks and that if any locks are changed, added or replaced (only upon your prior approval), the tenant must supply you with duplicate keys. The lease should also make provisions for your rental leasing firm’s periodic inspection of both the exterior and interior of the property and for entry (by appointment) for the purposes of showing the property during the last ninety days of the lease.

While a properly constructed lease agreement is very important should problems occur during the term of the lease, the best safeguard is in the form of “preventive” precautions – a good tenant evaluation program. You or your leasing firm should employ a number of standard procedures in evaluating rental applicants:

Before advertising and exposing your home to the leasing marketplace, a reference point should be established as to your home’s comparative rental value.

Your rental leasing firm should compare your home with recent rentals of homes that are similar to yours. This analysis should take into consideration how much they are leasing for, as well as their location, age, condition and specific amenities which may add to or detract from their rental value. This approach is identical to the appraisal process used to estimate the likely selling price of a home.

It’s not uncommon for rental value estimates to contain observations such as:

“Rent could be higher if the kitchen were repainted and curled linoleum re-glued or replaced.

“Lot size is small relative to similar homes, but home does have better walking access to local schools.”

“Subject home is adjacent to large recreational area, complete with wooden playground structures. Should be worth $100 per month more than similar rentals when renting to a family with children.”

The above assessments could be valuable both in preparing the home for showing and in targeting specific marketing approaches.

If you select a rental leasing firm, the next step is to execute a Leasing Contract specifying the duties and responsibilities of that firm and your obligations as the property owner during the term of the contract.

The contract should include the legal description of the property (street address is usually sufficient), a list and description of the specific services to be performed by the rental leasing firm, and a specific time and dates for both the beginning and the termination of that firm’s services.

The following items should also be addressed in the contract:

In most areas, there are numerous rental leasing and real estate firms from which to make a selection. Some deal exclusively in rental management. Others are divisions or departments of residential real estate companies. If you have become acquainted with any real estate agents in your community, you will want to ask them if the firms they are associated with provide rental leasing services. You may also want to check the “Homes For Rent” classified listings in your local newspapers to check out the competition for tenants and to see which companies seem to be more active in your area.