High Cost of Rent, Better to buy a home now

We sat down with Dr. Teresa R Martin, the owner/founder of REIA NYC, to learn about the benefits of purchasing a home versus renting. Despite rising interest rates, there are still opportunities and value in buying a home as a long-term investment and means to create generational wealth. We learn why buying a home is a better option when you have a long enough time horizon at the property. We also discuss the tax benefits of owning vs. renting and learn about a few other options available if your credit score needs work. Please join us as we dive into this topic with Dr. Martin and answer this debate once and for all.

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Transcript

TJones (0:00) - TJones - Hello, everyone. My name is Tim Jones with Foreclosure.com. Today we have one of our favorite guests, Doctor Teresa. Doctor T, it's always a pleasure.

TMartin (0:10) - So excited to be here. I am always loving to be here with you, Tim.

TJones (0:16) - So, as an advocate of creating generational wealth through real estate, why is buying a home better than renting?

TMartin (0:26) - How can we count the ways? Right? The biggest thing is the control, right? Before we start getting into, you know, generational wealth and all that jazz. It's just better to own than rent because you are the manager of that property, right? You have control over who lives in that property, who lives near you in that property. You know, if you're in the rental, right? You know, sometimes the owner dictates the color scheme, you know, if it's a two-family, you know who lives upstairs, downstairs from you, you can't choose your neighbors and things of that sort. You put the trust in the owner, right? But when you are the owner, you get to control, you know, your surroundings; that's the first thing. And then also, you know, you, it's like your own bank, right?So when you're, when you're paying your mortgage, you're paying down something, right? And now the more money you, you, you put into the mortgage and pay the mortgage down, you start building more value, you start building more equity. When on the flip side, when you're, you know, paying rent, it's going to the owner's mortgage, pay down equity value, right? So those are just the two things that I would say; if you just left it right there, those would be the reasons why I would say owning is better than renting, you know, but then you could also do a rent-to-own kind of concept and things of that sort. But, you know, owning is always gonna be better than renting.

TJones (2:00) - So, can you explain how owning a home creates wealth over time?

TMartin (2:04) - Hm. Yes, Yes, Yes. So as, as we started, as we started talking about, well, I started talking about as far as generational wealth and, and all of that for many people, you know, owning a home is the first step to real wealth, right? So when you think about it, it's like real estate will gain value the longer you hold it. Especially when that mortgage is paid down, right? And if done correctly, that can make a significant, a significant transfer of wealth to the Children and the family. So in and of itself, the home creates wealth if done Right, Right. We're not gonna talk about refinancing and all that stuff because that, that's a whole other thing. But if you do it right, the home will absolutely create wealth over time because it can create that transfer of wealth to your Children and your family.

TJones (2:58) - So, it's, it's important to consider how long you're staying at a home.

TMartin (3:02) - Absolutely. And, so, jumping into that. so let's talk about that for a second whenever you're, whenever you're going into anything. So whether you're going into a rental, whether you're going into a home purchase or even a business, right? You, you have to reverse engineer, right? You have to consider the length of time you're going to stay in that home, the length of that mortgage, and paying down the principal is going to be significant in allowing you to recoup some of that equity and that value in that property. So even if the property does not appreciate over time, the monies that you have put into the property, buying it down, will give you that actual value, and you can use that to pull out more assets when you're looking at a strategic refi or something like that, right? But understand, the reason why the length is important is because the first 5 to 7 years is interest, right? And so when you're buying that home, if you're gonna be staying in that home for less than five years, then you have to understand that you're not gonna have a lot of built-in equity and value because the bank, that's how they secure their finance, right? Because they front-loaded with interest so that if you went to refinance or something like that, they're gonna be able to get their value in that finance. So going into a home for less than five years is really understanding that you're paying mostly interest and nothing really towards the principal. So that's why it's really important to understand that because the bank has to protect their, you know, their investment, if you will. and multiple refinancing is basically paying the lenders and not paying you.

TJones (4:52) - Yes, that makes perfect sense. Well, since you mentioned refinancing, what are refinancing options, or when is the best time to refinance?

TMartin (5:03) - Hm, so let me get my disclaimer. I'm an attorney, and I'm not a mortgage person or a lender, but I play one on TV. But when we're thinking about, you know, the best time and different options, unless you're gonna, you know, get a lower interest rate, I believe that refinancing should be reviewed very carefully, right? If you plan to move or live in the property for less than five years, as I mentioned before, refinancing will hurt your effort to increase that value of the property through equity, right? If the plan is to stay in that property, and refinancing will provide you the funds to improve the property, hence increase the value or just be used to invest into another property, then refinancing will give you the best opportunity to get the most cash for, you know, via your secured asset, you know, so I would just say, you know, looking at that would be what I would say, your options would be if that makes sense.

TJones (6:10) - No, that, that, that makes perfect sense. I appreciate that. And what about the tax benefits of owning a property versus renting?

TMartin (6:18) - Well, the biggest one is you get to deduct your mortgage interest payments, right? So that's the big one, and I guess the second one would be, being able to deduct the property tax payments, you know, that's gonna lower your annual taxable income over time, right? So I believe those are the two major ones why most people do it. But also, you know, just really thinking about that depreciating asset and things of that sort, making sure if you're gonna do the rental versus, you know, owning the home outright because I only speak really towards the investment side of it, the business side of it. But, you know, it's also so many different other tax benefits that a CPA would be best for us to kind of, you know, help you along when you're thinking about this because if it is this type of a big investment, I always tell people check with your attorney and check with your CPA, right? Because your CPA is gonna, you know, protect you from your tax liabilities and help you elim, they reduce, you know, some of your tax obligations. And, of course, I always say your attorney is gonna protect your ASS-ETs, you know, when it comes to that, right? So we're always really just trying to make sure that you have that 1, 2 punch on your team. So, I would say deducting the mortgage payments and deducting the property tax payment would be my number 1 & 2.

TJones (7:39) - That's very valuable. Ok, So what other options are out there? I know you mentioned rent to own earlier.

TMartin (7:50) - Yeah, so there are two worlds, right? So, we think about, you know, in foreclosure.com, right? I always have to give you guys a big push, right? Because when you're looking at options and looking at finding stuff, right? You wanna think about foreclosures, right. So if you're a first-time homeowner and you have limited savings, right. There are programs out there to help you purchase, you know, a property. Ok, So let's just get that out the way and all that, but you know, buying a home retail may mean that it's outside of your purchasing power, right. So, I always tell people, well, you know, we can't really have a Caviar taste but a Kool-Aid salad, right? So we wanna make sure that you know what we're buying is managing expectations. So if it's outside your pur purchasing power for the retail property, this is going to limit which neighborhood you and your family can live in, and then you go towards the foreclosure property. So when you deal with a foreclosure property, it's something that the bank, it's a debt, it sits on their books as a debt, right? So they really want to turn this deficit into an asset. So they really want to get this foreclosure off their books, right? So as long as that bank holds that property, it's treated as debt, and it reduces how much funds the bank has to lend. But selling that foreclosure, even below market rates, turns that debt for the bank into an asset. So that is why the banks do the foreclosures REOs or what have you. And that is why most people who have that cash on hand can benefit from getting a foreclosure property, right? Because it's like a win-win scenario. Now, for those people who don't have a significant down payment money saved or they're working on correcting some issues with credit scores, a rent-to-own scenario would allow you to build both your savings and your credit scores by working with the homeowner and or the investor, you know, essentially extending you credit over a short time to purchase that property under your own financing if you will. And that creates that win win scenario for both you and that homeowner, ok. Seller, investor, whatever we want to identify them with. So rent to own is really a great opportunity. And obviously you gotta look at different states, right? Because some states don't like to rent to own because it was done poorly in the past or you know, some people just didn't understand it was really doing predatory schemes and things of that sort. But I am here to let you know that rent to own is always a viable option. Even I had to deal with rent to own creative financing; after 9/11 and all that jazz that happened, my credit score went like and I went from like (KAPOOF) a 789 to 437. You know, I think I always tell people this, I couldn't go into a bank without a gun to get money, right? So I really had to work on dealing with my personal credit. So don't let the Esq. fool you, right? So I still had to deal with that and everybody is dealing with situations, you know, not of their own doing, right? So whatever scenario you find yourself in is really a matter of, there are options and opportunities if you ask the right questions, right? And so that's the reason why a lot of people fail because they think they just are in this alone, they don't ask the right questions and then they just go and then people take advantage of them and they don't really know, you know, what they should do versus what they shouldn't do. So there are options for foreclosures, buying foreclosures, rent, to own creative financing, land trust, all kinds of things you can do. But you have to ask the right questions, Tim.

TJones (11:35) - That's perfect. Thank you so much for explaining that. You're very welcome. Make it very easy to understand.

TJones (11:44) - TWell, that's all the time. I want to take this opportunity to thank Doctor Teresa. And is there anything else you want to add before we head out?

TMartin (11:54) - I would like to do a plug for REIA N Y C. So if you want more information about, you know, real estate, real estate investing, real estate entrepreneurship, I invite you to check out REIANYC.org and just give us a shout out, come to some of our free complimentary meetings. We would love to have you.

TJones (12:12) - Perfect - Well, I hope you found this discussion helpful. Don't forget to sign up for our free email alerts on foreclosure.com until next time. I'm Tim Jones and thank you for watching.