Is it better to rent or buy in Orange County? A decision to purchase or rent in Huntington Beach, Anaheim or Fullerton may be informed by many variables including the state of the housing market, the supply of available houses for sale, but also your own long-term plans and goals.
Do you need a home where you can raise a family in the long-term with predictable payments? Owning might be for you. Do you need the freedom to pack up and move because of your job, school, or other variables? Don’t want to make a big down payment and budget for origination fees, inspections, and earnest money? Renting may be the better choice.
Some want to avoid paying property taxes and avoid having ties to the area that are too permanent. Others want the opposite. They want to settle into the area, and some may plan to eventually use the home they purchase today as a rental property tomorrow. Being a landlord requires you to be a property owner.
For some, it is better to rent in Orange County and for others, it’s best to purchase and put down roots. Which option is right for you?
Owning a home in this housing market means understanding the ins and outs of a high-cost housing market with high demand. It is smart to talk to a real estate agent about ways to be a more competitive buyer if you’re interested in making a purchase.
Mortgage pre-approval and a good amount of money saved for a down payment can help. If you want to rent instead, it helps to anticipate the first and last month’s rent, plus any renter’s insurance. Purchasing is a bit more complex and may require added planning and saving time.
Taxes are an important consideration when choosing to buy or rent. If you buy here, especially when it comes to your ability to write off mortgage interest and other expenses on your federal taxes. Tax law changes frequently so you will need to discuss your write-offs with a tax professional or someone from the IRS.
The most important thing to think about where taxes are concerned? Comparing what you can or cannot write off between renting and buying.
Buying your home means the potential to grow equity in the property and cash in on that equity later on with a cash-out refinance loan, a home equity loan, rehab loan, etc. Certain major repairs or improvements to your home may be tax-deductible depending on the tax year, so there is an advantage there also.
If you buy a home with a fixed-rate mortgage your monthly payments should be stable over time and not increase. That’s not necessarily true with a rental property. Buying a home is an investment that you can leave to your children or grandchildren; owning property is one of the most effective ways to build wealth over time.
Initially, renting is easier and less expensive (upfront) than buying.
One of the biggest advantages of renting in the O.C. has to do with not paying property taxes. You also won’t pay mortgage insurance (a common requirement for conventional mortgages with less than 20% down as well as FHA mortgages across the board) and you won’t pay a lender’s funding fee or origination fee with a rental contract.
When the housing market is competitive and inventory is low, it may seem more appealing to rent in O.C. rather than to fight a bidding war with an army of competing buyers.
Those who rent in Orange County have the advantage of staying mobile if they choose to; traveling and working is much easier when the living arrangements are easier to manage if you need to transition quickly.
Those who work for the federal government or private sector jobs that require relocations as a common aspect of the career are better suited to rent at certain stages of their careers. Renting means the ability to change neighborhoods if you are confronted with issues that make where you live now less attractive.
Has a major construction project changed the face of your neighborhood or suburb in ways you aren’t happy with? If you’re a renter, it’s easier to get free and clear of such problems.
If you rent, you can pack up and move a lot easier than if you need to sell a house and move on. But owning property means the potential to grow equity in your home and cash in on it when the time is right.
Owning means taking advantage of state or federal tax breaks where applicable, and renting means being subject to higher rents over time, but also means freedom from paying property taxes or for the maintenance of appliances, yard work, etc.
There are things that can help you decide whether to rent or buy an Orange County home:
- Interest rates creeping higher make renting more attractive, but it may be a bad idea to wait around indefinitely hoping rates will shift lower than they have been. Ask some advice from a loan officer if you aren’t sure what is ahead for rates and lender fees.
- Insurance is an issue for both renters and buyers but when you purchase a home you may be required to carry homeowner’s insurance, mortgage insurance, and any applicable hazard insurance. Renting can be far less insurance-heavy.
- Experience in the Orange County housing market is another factor to consider. Lifelong residents of the area may have a distinct advantage over newcomers when searching for the right home, the right neighborhood, and other considerations. If you aren’t from O.C. it may be wise to rent a bit first until you know the area better.
- Plans to sell later may be a consideration but if you are making those plans expecting recent housing boom conditions to be present when you’re ready to hit the market, you may be disappointed. Housing trends are cyclical and much will depend on what part of the cycle the market is in when you add your house to the real estate listings.
- Duration is an important factor. If you plan to sell long before you pay off a mortgage, would it make more sense to rent and sidestep lender fees, down payments, and property taxes? If you plan to keep the home long-term, property values may increase and work in your favor.
- Size is also something to devote some thinking time toward. Are you choosing to rent or buy a home you will soon grow out of? Do you need to buy a house you can grow into or rent a smaller home expecting to need a larger property down the road?
- The housing market may dictate some of your choices; if there is low inventory and there are high prices on houses for sale, it may make sense to wait until the seller’s market has waned and buyers have more leverage when it’s time to negotiate.
- Maintenance and upkeep are factors if you own a home, but you likely won’t pay to replace a dishwasher or washing machine when you rent. Mowing the lawn may not be an issue with a rental unit, but you’ll definitely be expected to care for your own landscaping and maintenance as an owner.
Joe Wallace has been covering real estate, mortgage and financial topics since 1995. His work has appeared on ABC, The Pentagon Channel, Veteran.com plus a variety of print and online publications. He is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.