Planning to sell your house and move into a multi-unit building? If you've noticed all the fancy new apartment buildings popping up lately — the Twin Cities gained about 3,100 new units last year — you may be tempted to consider renting.
Especially because financing and other problems have stalled development of new buildings with owner-occupied units, plunging the local condominium supply to its lowest in decades.
Financially speaking, experts say that in the Twin Cities, owning your home remains a better deal than renting. Despite all the new construction, apartment vacancy rates here are among the tightest in the nation, keeping rents relatively high.
"It is so much more expensive to rent than it is to buy," said J.J. Ellingson, a Minneapolis mortgage adviser.
For apples-to-apples comparisons, a calculator on the real estate website Trulia (www.trulia.com/rent_vs_buy) lets you plug in a monthly rent and a home price, along with a few other factors, to compare the costs. For example, if you're a Twin Cities resident in the 25 percent tax bracket who plans to live in the home for 10 years and can get a 4.5 percent mortgage, you're better off buying a $200,000 home than renting for $1,000 a month. Owning would be 17 percent cheaper, the calculator shows. For the costs to square up, you'd have to either find a rental for $825 a month or raise your sights to a $245,000 home.
For financial reasons or otherwise, many people feel more comfortable owning their home, said Herb Tousley, director of the Master of Science Degree in Real Estate at the University of St. Thomas. "A lot of Minnesotans have this thing about owning. We have a high ownership rate."
Still, money isn't the only consideration. Your lifestyle, your financial situation and your plans for the future also influence your choice of home, and some factors may point to renting as a sensible choice.
You may be better off renting if:
• You aren't sure how long you'll be living there. Might want to move closer to your kids someday? Does each winter leave you thinking more seriously about a double-wide in Corpus Christi? "Where I see people looking to rent is when they're just not sure if this is really the right step for them, for example if living in Minneapolis in a condo or loft is really what they want to do," Ellingson said. "Renting lets them spend a year, get their feet wet, see if that makes sense, and then go to buying."
• You don't want to bother with interior maintenance. "If you want to have a relatively carefree existence, you let the landlord worry about the plumbing," said Julian Zweber, a St. Paul attorney specializing in elder law.
• You don't want to tie up money in a mortgage. "Let's say you want to start a business," Tousley said. "Then you might want to rent."
You may be better off buying if:
• You're married, and want to protect your equity in case one of you winds up in a nursing home. If you sell your home, invest the proceeds and rent, a big chunk of the funds could be subject to "spend down" rules before the spouse in long-term care qualifies for Medical Assistance, Zweber said.
• You're an avid gardener and want a yard.
• You have a pet and worry about finding a building that would welcome Fido.
• You want to be able to deduct your mortgage interest on your taxes (although renters can take advantage of a tax credit designed for similar purposes).
• You want to use the equity in your home for lines of credit or a reverse mortgage, or as part of your estate. Under federal law, when heirs sell a house, their capital gains for tax purposes is based on the home's market value at the time of the owner's death, not the date of purchase. □