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RENTAL SAVVY

Knowing when you're ready to go from renter to owner

March 14, 2004|H. May Spitz | Special to The Times

Fed up with paying rent? Tired of watching real estate prices rise? There are a host of pros and cons for renters to weigh before deciding whether to step over the threshold and buy a first home:

* Freedom. As a tenant, one can usually lock the door and take a vacation with no worries about mowing the lawn or home maintenance. Inside and out, the property and its problems belong to someone else. As an owner, your castle is also your headache.

* Flexibility. Don't like the neighborhood after all? With proper notice at the expiration of the lease, renters are free to go. Selling a residence is far more involved and isn't free. Despite appreciation, there are commissions to be paid. And homeowners selling within two years of purchase can be in for a tax bite.

* Avoiding the ownership learning curve. As a tenant, there's no worrying about estimates for driveway repaving or roofing materials. Researching the choices for one's dollar takes time and experience. Besides paying for materials and labor, owners must find someone to do the work. The legwork and reference checks thrill some, tire others.

* Noisy neighbors. As a tenant, it's much easier to walk away from noise problems. As an owner, it's more complicated, and a "party house" next door can affect the sale of your investment.

* Appliance repairs. Depending on the language of the lease, most items, such as stoves, refrigerators and other appliances, are the responsibility of the owner to repair.

* Major maintenance. Roof leaking? Renters call a landlord. Owners may need to float loans for major repairs.

* Disclosure. After vacating a rental, tenants are off the hook. For sellers, disclosure is the name of the game to avoid future litigation. For example, a tenant need not mention the pending construction of an airport, whereas a seller must.

* Insurance. Tenants in the U.S. spend an average of $175 annually on renters insurance, according to the nonprofit Insurance Information Institute, www.iii.org. Rarely required by most landlords, it's a risk-cost trade-off, since landlord insurance does not cover tenants' personal property.

For homeowners, insurance is required by most lenders, and costs more than triple tenant insurance on average nationwide.

* Stability. For renters there's always the possibility an owner will decide to move back into the residence.

Some considerations of ownership:

* Investment. Every mortgage payment puts the borrower one step closer to owning, whereas rent payment is just money spent.

* Pride of ownership. As much as a tenant may adore the apartment, the walls belong to another. Renters are sinking money into someone else's investment.

* Commitment. Choosing a home to purchase requires a longer commitment than 30 days or even a year. Then there's the financial obligation. Depending on previous credit and other variables, lenders request down payments varying from 5% to 20% of purchase price.

* Credit. Credit ratings often get a boost from on-time mortgage payments.

* Room to grow. As a tenant, knocking out a wall and adding a bedroom are rarely an option. For owners, budget and imagination are the limit -- once zoning ordinances and permit requests are resolved.

* Taxes. Owners enjoy tax savings on the interest portion of the mortgage, which can be sizable in the early years of the loan. Property taxes are also deductible.

The tax amount is trimmed off gross taxable income, lowering the tax bracket for some.

And last, if an owner has to move but doesn't want to sell, leasing the place is an option. Ironically, the renter-turned-owner could end up being a landlord.

H. May Spitz is a Los Angeles-based freelance writer. Reader comments may be sent to hmayspitz@aol.com. Attachments cannot be opened.

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