Rental Report: Rent, Buy or Rent to Own?

Editor’s Note: This biweekly sponsored column is written by Rick Gersten, founder and CEO of Urban Igloo, a rental real estate firm that matches up renters with their ideal apartments, condos or houses. Please submit any questions in the comments section or via email.

Unlike many other markets in the country, the D.C. Metro real estate market is robust for both rentals and sales. If D.C. isn’t just a quick stop on your life path, you might be thinking about buying a home. But is buying the best option for you?

The answer is that it depends on your needs and lifestyle.

Benefits of Renting

1. Minimal down payment – when renting in the DC area, you generally will have to part with your first month’s rent and a security deposit prior to move in, as well as an application fee. Depending on the type and location of the rental, a security deposit can range from a few hundred dollars up to two month’s rent (in Marlyand and Virginia — D.C. only allows for one month). According to Trulia, the average home price in Arlington is just over $755,000. At 20 percent down, buyers need $151,000 for a home purchase. That is out of reach for a lot of people. Not to mention, it isn’t easy to qualify for a mortgage that high.
2. Repair work is a phone call away – well technically that’s the case for either, but with a rental the landlord is likely to pay the bill.
3. Less extra costs – Renters don’t have to pay property taxes on their home. Generally, renters will not pay any HOA or condo fees, as the landlord will cover those.
4. Flexibility – If by chance your life path changes quickly, you aren’t tied down for long. You don’t have to worry about selling your home (or worse, not selling your home.) If you have to move during your lease, the maximum amount you stand to lose is the balance owed on your lease.

Benefits of Buying

1. Ownership – Once you sign on the dotted line, the home is yours to change however you please.
2. Buying is cheaper – Sure, we said it costs a lot to buy a house, and that is true. According to Trulia and Urban Turf, it is 34 percent cheaper to buy in the D.C. area. But be careful, it isn’t cheaper for everyone. There is a great calculator to help you figure out if it is true for your situation.
3. Investment – As long as you chose wisely, pay the right price, and inspect the property carefully, you are adding an asset to your portfolio.

What about rent to own?

While rent to own is not common, it is making a comeback due to the increasing number of people who can’t qualify for a mortgage. And a rent-to-own option isn’t just attractive to renter/buyer but to the landlord/owner as well.

Renters get to put part of their rent towards the purchase price. Landlords get tenants who are invested in maintaining the home, since the idea is they will buy it in a few years. Renters can lock in on a price of the home, if they chose that option. Landlords get a guarantee of sale (at least in theory). Of course, there are a few downfalls too — rent is usually higher because you are paying additional toward the down payment and the renters could choose not to buy at the end of the contract.

So what’s the best choice? Think about your situation. Are you staying in the area for a while, and you can afford to put the cash down? Buying a home is probably the smarter investment. Not sure how long you are going to be in the area? Not sure how much space you really want in a home? Rent for some time until you know what your needs are. What about if you know you want a home, but don’t have the cash or credit to buy right away? Maybe check out some rent-to-own options. You may be able to find that dream home in a desirable neighborhood.