Experts assess the advantages and disadvantages of renting vs. buying

METRO DETROIT — According to Royal Oak resident Jessie Miletic, she and her boyfriend, Lucas Morris, were recently put in a position that made them think about whether it was best to continue renting a home or to become first-time homeowners.

This past December, the couple signed a 12-month lease for a rental home in Royal Oak. However, approximately four months into the lease, the landlord informed them that he would like to sell the property and eventually offered them a deal — be out by Sept. 1 and he would “give us a month’s rent for free.”

The couple agreed to accept that offer. Prior to that, their plan was to stay in the rental property until December of this year and then extend the lease or find another place to rent.

However, at some point during the course of their conversations, the possibility of buying a home started to seem like an appealing option.

Miletic said that they had both reached a point of being “sick of” putting money toward something that wasn’t building equity.

Prior to renting a home in Royal Oak, Miletic said that she had been renting apartments “a bunch.”

Morris has also done his share of renting.

“I’ve been renting for about 10 years, and I have no equity in a home,” he said. “I feel like I threw away a decade’s worth of money.”

Some rental homes get listed through real estate agencies, and Realtor Justin Bercheny, of Max Broock Realtors in Royal Oak, helped the couple secure their rental home in Royal Oak.

When the decision was made to buy a home, Miletic and Morris once again turned to Bercheny for assistance.

After looking at approximately a dozen houses, the couple saw a home in Southfield that they decided to make an offer on.

Their offer was accepted, and they were scheduled to close on their first home Aug. 8, after press time.

Morris said it is exciting to have a chance to build equity.

“Very excited, too, to be in a place more long-term, make it our home, (as) opposed to more of a temporary thing like we’ve been doing,” he said.

Miletic has also become a proponent of the advantages of buying a home, as opposed to renting one.

“When you’re renting, you can’t make any changes to it — at least substantial changes,” she said. “We decided space was an issue, first and foremost, and then not really getting our money back into a house that we could sell later on, pass down, or whatever. … It’s exciting, in the sense that we finally get a place to call our own and we can make changes — make it feel like our home.”

For Morris, what helped confirm that the couple made the right decision was when he learned that they would be paying slightly less for mortgage payments than what they have been paying in rent.

“It was like a sealed deal after I heard that,” he said.

Bercheny is of the opinion that there are times when it makes more sense to rent than buy. However, he believes the ultimate goal should be to purchase a home.

“Renting is great when it has a purpose. If you’re just renting for 20 years, that is not for a purpose,” he said. “But if you say, ‘I would like to buy a house in a year, and I’m going to spend the next six-to-nine months building my credit, building my savings, establishing income,’ whatever the case may be for your individual situation, that is renting with a purpose.”

Bercheny shared his perspective as to why buying makes more sense in the long-term.

“Renting with a purpose, I am all for, but when it comes to building wealth, especially generational wealth, there is nothing better or more consistent than homeownership,” he said. “When we’re looking at the idea of buying a house, overall, the market is always going up. We might have some dips; it’s a flow where you have some downtime and some uptime, but the overall arch is always going up.”

Larry Campbell has owned Century 21 Campbell Realty in Madison Heights for approximately 49 years. While he believes that owning real estate has traditionally been a sound investment, he pointed out that, in recent years, it has been “painful for buyers; they get beat up.”

“Growing up, everybody has always wanted to own a home. It’s supposed to be part of the American dream,” Campbell said. “When you bought a home, you established a price, you made your payments, you built equity, and once the home was paid for, you had a strong asset for your family. … It was always a good investment. But what’s happened is, as a result of good investments and the housing prices soaring like they have in the last three years, it’s taken a lot of potential buyers right out of the market.”

Due to a reduction in the number of homes on the market, prices have gone up, which has led to bidding wars and buyers paying above the original asking price for properties.

“They pay way more than they should,” Campbell said.

The reduction of the number of homes for sale has also had an impact on the rental market.

Aside from some landlords opting to take advantage of a strong sellers’ market and listing their homes for sale, Campbell has also noticed another trend as a result of the reduction in properties for sale.

“Tenants are moving into properties because they can’t find housing,” he said.

With the demand for rental properties increasing, so have the prices.

Campbell said that he thinks renters are going to be shocked at the cost of some rental properties.

As an example, he pointed out that a 1,000 square-foot, three-bedroom  home in Madison Heights that would have rented for around $1,000 a month three to five years ago would now command over $2,000 per month.

Like Bercheny, Campbell is also a proponent of buying when the circumstances are right. However, from his perspective, there can also be pros to renting.

“The advantages to renting — you can get into the property with low repairs and maintenance, you’re able to be more flexible (and) you can possibly get into better communities because you’re renting versus buying,” Campbell said. “So for some to be able to rent, it will allow them a place to live, which may be a nicer community than what they can afford. The cons of all that is, over time, the rent goes up. As the landlord’s expenses goes up, so does the tenant’s.”

Despite stating that she doesn’t think that she and Morris will ever rent again, Miletic also pointed out one of the pluses of renting.

“I guess one advantage would be if something was broken,” she said. “Our heat was out three times this winter, so having the rental property company take care of it and not having to fix it on our dime was an advantage.”

Campbell shared tips for those who are currently in a situation in which it makes more sense to rent than buy.

“While you’re renting, I tell people, ‘Even if you take a one-year lease somewhere else, continue to look,’” he said. “If someone takes a year lease (and) continues to look while they’re in a lease, they’ll have more flexibility, and in most instances, it’ll work out. … Work hard, save your money and invest — invest in saving money for a down payment.”

Bercheny has observed a change in market conditions that can help make life easier for potential buyers.

“I was remarking on Monday that we had 240 in the general southeast Michigan area — we had 240 new listings. That’s houses that had not previously been on the market,” he said. “And we had 219 price reductions. When those two numbers, new listings and price reductions are very, very close together, now it’s kind of the time where buyers are in a little bit more control; they have a little bit more ability to negotiate.”

Bercheny expanded on his point.

“There’s more houses on the market; there’s more flexibility in the pricing,” he said. “And so, buyers are in a better general standpoint. Doesn’t mean it’s a bad time to sell; it just means that there’s an evening-out of the market.”

Although Bercheny thinks that rental prices are still a “little high,” he thinks it has started to level off, which is providing more flexibility for those submitting rental applications.

“Overall, I think that both markets are strong, for buyers and for tenants,” he said. “Now is the time for people to say, ‘OK, if I’m spending $2,000 a month on a rental and getting nothing out of it except a roof over my head, what can that $2,000 a month get me if I was buying my own home? … Now that same monthly expense is gaining me something. I’m getting equity, I’m getting wealth (and) I’m getting something more than just giving my landlord some income.’”

Jake Slobin, who is a senior loan officer for Supreme Lending in Farmington Hills, weighed in on the subject of renting versus owning.

“In a lot of instances, we see buyers closing on homes and moving in for less than if they had to rent, where they’d be required to pay application fees, security deposits and first (month’s) rent,” Slobin stated via email. “There are numerous different down payment assistance programs that will help cover your down payment and closing costs.”

Campbell shared his advice for the best way to get educated about when it makes more sense to buy and when it makes more sense to rent.

“Sit down with a good real estate agent,” he said.