Types of Second Homes

Rental Properties
Rental properties are second homes purchased with the goal of making a profit. These properties can either be long-term investments or short-term, flip-style purchases. They range from houses to condos, and everything in between.

Long-term investment rental properties are homes bought with the intention of selling them later when the market has significantly increased their value. These types of properties became especially popular during the housing boom of the mid-2000s when home values skyrocketed. However, such markets are rare, and people looking to sell homes for profit must often be prepared to hold onto the property for an extended period. During this time, the property can be rented or leased to interested parties. The rent should, at the very least, cover the mortgage and property taxes. In many cases, long-term investors find that their profits increase over time as the value of the property rises. Similarly, as with selling prices, the amount a homeowner can charge for rent will go up, allowing them to eventually charge more than the mortgage payment.

On the other hand, homes bought to flip quickly are a different matter. Often, owners of these properties finance their purchase with a second mortgage. The goal is to sell the property quickly, often before the first mortgage payment is due. Remember, the initial payments on any mortgage are where the bank earns the most interest!

Vacation and Retirement Homes
Vacation and retirement homes have gained significant popularity in recent years. With more disposable income, many families are choosing to invest in property they can move to when they retire. As real estate is being snapped up all over, savvy vacationers are increasingly interested in purchasing property in prime vacation spots where they can enjoy yearly holidays.

As with income properties, owners of vacation and retirement homes also have the option of renting out their properties to help finance their second home. One option is to charge a standard rent, where the owner collects a monthly fee for allowing someone to live in the house. Again, the rent should be set slightly higher than the mortgage payment, as the owner will need to cover property taxes, other fees, and any necessary repairs that may arise if the tenant proves to be problematic. Since the goal of a vacation or retirement home is not necessarily to make a profit, but simply to pay off the mortgage, there is less pressure to charge excessively above the mortgage amount.

Owners of vacation homes may find it inconvenient to rent to a monthly tenant, as this could interfere with their own vacation plans. However, there are exceptions, such as vacation homes that are primarily seasonal. Properties like condos on ski hills or in resort areas can be rented out to workers during the off-season and still remain available for personal vacations. Second-home owners might also consider building a separate suite on their property to rent out. There is always demand for rental properties, particularly in resort areas, and an add-on can be a great investment year-round.

Financing Vacation Homes Year-Round

Another way for vacation home owners to finance their properties year-round is to rent them out on a weekly basis to other vacationers. Many people purchase vacation properties in highly popular areas where hotel prices are often prohibitively expensive. More and more families are realizing that renting a private condo or house can be a cheaper and more comfortable alternative to staying in hotels. These rentals come with all the comforts of home, offering a much more relaxing experience for vacationers. Families can rent your vacation home for blocks of two or three weeks, or even longer. This allows owners to plan their own vacation while also making mortgage payments through rental income.

Renting out vacation homes has become so popular that many resort areas now have entire industries built around renting out properties. Vacation home rental companies handle bookings, cleaning, and providing supplies for the property owner, though these services come at a cost. Many homeowners find that the cost is well worth it, as the company takes care of nearly all concerns related to managing the property.

For those purchasing second homes, it’s important to note that the investment itself plays a key role in determining how successful the financing will be. Don’t purchase a vacation home in an isolated area and expect to finance it purely through rentals. Renting is generally only viable in or near busy resort areas. An isolated second home may require more work to advertise it as a rental, or you may need to rely on your own income to cover mortgage payments.

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However, when you’re in the market for a place to hang your hat, there are many more factors to consider than just the basic materials of the structure. If you’re building a brand-new home from scratch, one of the biggest decisions you’ll make is choosing a home builder.

Out of all the purchases you’ll make in your life, your house has to be at the top of that list in importance. So, how will you know if your home is in good hands or not?

Research and Credentials: The First Steps in Choosing a Builder

The first step in selecting the right home builder is to research various networks of contractors. The vast World Wide Web is a great way to get in touch with different contractors and compare rates and reputations. You want to use a resource that only includes the most experienced and professionally trained contractors in its database. Contracting firms will screen potential builders so that you don’t have to deal with any “bad apples.”

Note: If a contractor doesn’t have membership with NARI, the National Association of the Remodeling Industry, you’re likely dealing with a bad apple. Members of NARI adhere to a special code of ethics and are certified professionals.

Once you’ve verified that the home builder meets the basic credentials, you can dig a little deeper.

What business does the builder work for? What are their contacts and other industry associations? Answering these questions will help you size up the contractor. A builder may look good on paper, but if they’re employed by a company that is not well-established, it’s reasonable to be skeptical—and you should probably move on to the next candidate.

In addition to checking the contractor’s employer, make sure they are licensed with the local and state government (though this isn’t always required). Also, ensure that all reputable home builders are fully insured.

By now, you may have narrowed down your choices and found a few contractors who seem appealing. But your job isn’t over yet. It’s time to double-check your options using a consumer watchdog agency. The Better Business Bureau (BBB) is a great resource—it can tell you if a home builder has a history of complaints or penalties, or if they have a squeaky-clean reputation.

The Face-to-Face Interview: Digging Deeper

Still, you’re not quite ready to decide on a contractor just yet! You need to have a one-on-one, face-to-face meeting with the builder. This is your chance to ask tough questions. After all, this person will be constructing the home you may live in for the rest of your life. You need to ensure that the builder is not only qualified but also understands your personal needs as a home buyer.

When selecting a home builder, what questions should you ask? You can ask more detailed questions about what you’ve already researched—for example, inquire about the builder’s place of employment and personal track record. But you also want to ask specific questions about the construction process. How long will it take before the house is ready for move-in? How many crew members will be on hand?

Treat this meeting like a job interview. Just as an employer would ask for references from a potential employee, you should do the same for your home builder! But where should these references come from? They shouldn’t come from the contractor’s best friend, mom, or the head of his or her business. Instead, ask for the contact information of the builder’s former clients, and then ask those clients about any problems they encountered.

When you finally choose a home builder, you should feel 100% confident in your decision. The process of selecting a contractor is certainly long and tedious, but it’s one that cannot be overlooked. Fortunately, it’s a process you won’t regret taking seriously! Consumers read reviews and comparison shop for the most insignificant, inexpensive products, so why shouldn’t they do the same for a contractor who is going to build their home?

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In Canada and the United States, there are similar mechanisms for purchasing foreclosures, but provincial and state laws govern these processes. Those interested in buying foreclosed homes for investment purposes should be aware of the nuances in laws that vary from province to province and state to state.

Buying a Foreclosure in Canada

In Canada, there are two primary procedures for handling foreclosures. The first is called a Judicial Sale, which involves court intervention. The lender must file a case against the defaulting borrower to seek permission to sell the property. The following provinces in Canada follow the Judicial Sale process:

• British Columbia
• Alberta
• Saskatchewan
• Manitoba
• Quebec

In Nova Scotia, it is referred to as Mortgage Foreclosure, but the procedure remains a Judicial Sale since the court is involved.

The second procedure is the Power of Sale, which can proceed without court intervention. Here, the lender takes necessary steps to sell the property if the borrower defaults. This right to foreclose is stipulated in the loan or mortgage documents.

Provinces Using the Power of Sale

The following provinces use the Power of Sale type of foreclosure:

• Newfoundland
• Ontario
• New Brunswick
• Prince Edward Island

Even though some provinces fall under Judicial Sale or Power of Sale, the procedures can vary. Specific steps must be followed in a particular order before a foreclosed property can be sold.

Buying a Foreclosure in the U.S.

In some U.S. states, there is a pre-foreclosure stage followed by the foreclosure stage. Some states use the Judicial Method, others the Non-Judicial Method, and some utilize both procedures.

Real estate investors in the U.S. who specialize in pre-foreclosures and foreclosures find this area of real estate particularly exciting. Banks typically do not like to keep foreclosed properties on their books for long, often selling them at significantly reduced prices. However, caution is crucial when buying a foreclosure; conducting due diligence to ensure the property is free of liens or lawsuits is essential.

A savvy real estate investor pays attention to city hall proceedings, which could be at the town registry, county clerk, or a similar municipal office. When an individual defaults on a mortgage payment, they receive a Notice of Default, indicating that they have not lost their house yet.

Upon receiving a Notice of Default, lenders are often willing to negotiate with homeowners to resolve the payment issue. Depending on the state, this notice typically allows 30 to 90 days for the borrower to address the situation.

If the loan remains unpaid after this period, a Notice of Trustee Sale is sent, indicating the homeowner is about to lose their property. A date for bidding at the courthouse is then scheduled, marking the beginning of the foreclosure process in the U.S.

Astute real estate investors often act before the Notice of Trustee Sale is issued. They monitor public records for Notices of Default and may contact the property owner to offer to buy the property before it goes into foreclosure. This can lead to homeowners selling their properties at low prices just to avoid court proceedings.

In some cases, the investor may allow the homeowner to remain in the house, charging a monthly rent.

Buying a Foreclosure: Take a Closer Look

While buying a foreclosure can be a lucrative investment, the classic “buyer beware” principle applies. Ensure that the property isn’t a “doghouse” or “outhouse.” If a homeowner has defaulted multiple times, it suggests they may not have the financial capability to maintain the property.

If the house is in disrepair but situated in a good location, investors might negotiate a good price. However, be cautious of properties in deteriorating neighborhoods, as no amount of renovation may fully recoup your investment. Renovation costs can also exceed your budget, particularly since auctioned homes have not undergone inspection. How comfortable are you with purchasing a property sight unseen?

Additionally, not all foreclosure prices are necessarily bargains.

Ready to Buy a Foreclosure?

Before proceeding, access reputable databases or foreclosure notice services that maintain updated lists of pre-foreclosures and foreclosures in your area. Some services charge a fee for this information, covering all Notices of Default, Notices of Trustee Sale, and REOs (real estate owned by banks).

If you choose to buy foreclosures, remember to conduct thorough due diligence. Ensure you have all necessary documentation; if unsure, seek professional assistance.

Investors agree that buying a foreclosure directly from a private homeowner is often the best approach. This method avoids court hassles, and as long as both parties agree on the terms, it can be a win-win situation. Although the homeowner may sell below market value, this route eliminates the burden of judicial proceedings.

Auctions for foreclosures are best left to experienced investors. If you decide to participate in an auction, be prepared to do your homework and come ready with your checkbook!

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When we talk about new build homes there are two options to consider. The first is the custom home that’s been designed specifically for you, with all the details that you wanted, while the second is what’s called a ‘spec’ home, and while there are benefits to buying the latter kind of home, there can also be drawbacks.

What is a Spec Home?

First let’s talk about what exactly a spec home is because it’s important to note that spec homes can have different names, depending on where you are in North America – you may hear it referred to as a move-in ready home, featured home, inventory home, or immediate delivery home, but basically these all mean the same thing.

A spec home is a house that has been designed and constructed by a builder without a specific buyer in mind. Basically the builder has taken the chance that he will be able to sell the home once complete, or near completion. Obviously the builder is taking a little bit of a gamble here, hoping that a buyer will come along before too long, and because of this he wants the home to appeal to as wide a market as possible. The architecture, therefore, will be based on a standard plan, probably using a design that’s popular for the neighborhood they’re building in. Usually the fittings will be what’s called ‘contractor or builder grade’, though some builders may offer the chance to upgrade for an extra cost.

The Advantages of Buying a Spec Home

Really there are three big advantages to buying one of these homes: the fact that you can move in very quickly, the fact that it’s completely new, and the fact that you can see exactly what you’re buying.

Move In Ready
A spec home is usually offered for sale very close to, or at its completion, and considering the builder is likely to want a quick sale you can often move in very quickly. The only thing delaying the process is likely to be your lawyer, making sure everything is in order, but if they can get through the legal process quick enough, you could be moved into your new home within a couple of weeks! This makes a spec home a great choice for a buyer who wants to move quickly; whether it’s your first home, or you want to be moved out of a rental home before the end of the month.

It’s Completely New
The fact that a spec home is completely new is appealing too, and though this isn’t always the case, some builders may allow you to choose your own paint colors and finishes, or negotiate some upgrades, if you approach them early enough. This way you to get to make some of the decisions and end up with a home that you’ve had at least some say in the look of!

You Get to See the Home Before You Buy
When you’re paying for a custom built home, it’s going to be some time before you really start to see it take shape, and during that time there are bound to worries over the quality of the craftsmanship. With a spec home you get to see it before you buy and you have the opportunity to inspect every corner of the home to make sure you’re happy with the finishes.

The Disadvantages

The biggest disadvantage of a spec home is choice, or rather your lack of choice. You will have to live with all the decisions that someone else has made. Things like the overall architectural style of the home, and the internal layout and room configuration, so a spec home isn’t for a buyer who prefers to be individual and wants a home that looks different to everyone else!

The same applies for the finishes too, whether we’re talking about paint colors, kitchen and bathroom fittings, lighting, and appliances. The builder is likely to have chosen items that he can get at a contractor’s rate, and while they may be of a good enough quality, they are unlikely to be high-end, so you’ll need to live with these things, or change them at your own expense.

As mentioned above, you may be able to have some say in the finishes, depending on how close to completion the home is. Though often you will still be forced to select from a list of options, so even then the choice is not completely your own.

Things to Remember
So if you’re still considering buying a spec home there are some important points that you should remember…

Even though the home is completely new, doesn’t necessarily mean everything is in working order. You MUST get a home inspection so that plumbing, electrical, HVAC and more can all be checked by an independent, unbiased inspector. And choose the inspector yourself, do not go with one recommended by the builder.

Use a real estate agent to help you through the buying process – you won’t have to pay them a cent yourself as the builder pays for this, but their experience will be invaluable and likely save you a lot of time and headaches.

Finally, don’t forget to ask if you can make any changes to the home, even if it’s already complete, as some builders will allow this. Paint colors and flooring are possibilities, while some builders may offer an upgraded appliances package.

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A show home typically features all available upgrades and numerous designer touches. While it’s technically a “new home” because no one has lived in it, everything is already complete and move-in ready.

With the real estate market experiencing fluctuations, many builders are scaling back on new construction. To reduce costs, they often sell off model homes. This allows them to recoup some investment now, and when the market rebounds, newer trends or neighborhoods may call for entirely new models anyway.

Buying a show home from a builder can be a win-win situation. However, there are a few important things to keep in mind when considering a model home purchase.

The Ups and Downs of Buying a Show Home

Pros and Cons of Buying a Show Home

The biggest advantage of buying a show home is that everything is top-of-the-line. Remember, this home was designed as a sales tool for the builder. The more upgrades they can display, the more they can potentially sell—meaning most show homes include premium flooring, cabinetry, countertops, molding, lighting, windows, doors, architectural features, appliances, and other fixtures.

These homes are often professionally decorated as well. While builders usually retain any furniture brought in for staging, buyers may benefit from extras like curtains, blinds, floral arrangements, or even wall art. Professional landscaping is also commonly included.

You might even find luxury features such as decks, fireplaces, spa tubs, or pools—amenities that would normally cost tens of thousands of dollars as upgrades—already built in.

While that all sounds ideal, it’s important to ask a few key questions. For example, has the home ever been lived in, even temporarily? Don’t make assumptions. While most show homes are only used for display, a builder may have allowed someone to stay there—or may have even lived in it briefly themselves.

Even if no one has lived in the home, remember that it’s likely been visited by hundreds of people. The carpet may have been cleaned frequently to maintain its appearance, and the walls could have had numerous touch-ups. Be sure to ask about any damage that may have occurred and how it was repaired. Builders may fix things cosmetically without considering long-term durability.

Before committing to a purchase, spend time walking through the home and evaluating its practicality. Show homes are sometimes designed to be visually impressive, but they may sacrifice functionality. That stunning double-sided fireplace may be a conversation starter, but does it leave you with no logical spot for your television?

When hiring a home inspector—which you absolutely should—make sure they’re aware the property was a model home. Ask them to look out for details often overlooked in show homes, such as improperly installed appliances or unsealed tub enclosures. A home may look beautiful but still not be ready for day-to-day living. Make sure it’s ready to be lived in—not just looked at—before signing on the dotted line.

Closing the Deal on a Show Home

As with any home purchase, it’s crucial to have someone representing your interests. Buying a show home offers the opportunity to enjoy high-end features that might otherwise be out of reach. However, don’t let excitement lead you to rush the process. Work with a trusted Realtor or real estate lawyer who can carefully review all the paperwork before closing the sale.

Keep in mind that this is a buyer’s market. Even though show homes can be rare and desirable, you shouldn’t feel pressured to act too quickly. Builders with show homes are usually well-established businesses and are likely to be far more experienced in negotiations than you. Don’t let that imbalance work against you.

Having a real estate professional guide you through the process can help you avoid the common pitfalls that come with over-eagerness. Protect your interests, take your time, and you could end up with a beautiful, feature-rich home—one that makes you the envy of your friends and family.

Good hunting!

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All the usual real estate norms were thrown out the window during the 2005 housing boom. Sellers were encouraged to aim high with their asking prices, and buyers were advised to make offers immediately on any home they liked. Even the traditionally underwhelming tactic of the open house became wildly successful for sellers during this time.

The Seller’s Market

What happened that year is known as a seller’s market, which typically arises from a combination of the following factors:

• **Low housing inventory**: Fewer homes are available for sale—either they’re being sold before hitting the market, or homeowners aren’t interested in selling. Additionally, new construction slows down. This is common in areas where land use has reached capacity.
• **Low interest rates**: These rates play a crucial role for homebuyers. Lower interest rates—often influenced by a nation’s financial policy—mean buyers pay less in mortgage interest over time. Even a 1% drop in interest can equate to thousands of dollars saved on a home loan, motivating more people to buy.

It’s important to note that seller’s markets don’t apply to all real estate sectors. Even during the explosive growth of 2005, some regions across the country didn’t experience significant price increases. Housing prices are highly regional, so one strategy for avoiding a heated market is to look in areas considered less desirable by the majority.

Buying in a Seller’s Market

One unique aspect of a seller’s market is its self-sustaining nature. Lower interest rates attract more buyers, which leads to even fewer homes on the market. As a result, buyers need to do some legwork before they start viewing homes—and they must be ready to act quickly once they find one they like.

Preparing Ahead of Time

Before you begin house hunting in a seller’s market, there are a few essential steps to take:

Get pre-approved for a mortgage. Pre-approval shows sellers that you already have financing in place. In a competitive bidding situation, offers without proof of funds are often immediately dismissed.

Have a strong down payment. Some real estate experts suggest that a larger down payment may help your offer stand out, though the exact benefit to the seller may vary.

Work with a qualified real estate agent. In a hot market, many homes sell before they’re even officially listed. A well-connected agent will know what’s available—and what’s coming soon. Agents also understand market trends and can help you decide how much to offer. Bid too high, and you risk overpaying. Bid too low, and your offer may be dismissed without consideration.

Finding a House

Once your preparations are complete, it’s time to hit the market. Start by browsing listings online and talking with your agent about properties in your price range. Be ready to move fast on anything that interests you—but don’t let urgency cloud your judgment. Take the time to walk through each property and assess whether it truly offers good value.

It’s smart to go into the process with a firm maximum budget in mind—and stick to it. While you may be able to obtain assistance through a co-signer or a personal loan, remember that any borrowed money must eventually be repaid.

Some buyers have tried unconventional methods to gain an edge. Writing personal letters to sellers is one approach, though its effectiveness is debated. If you do write a letter, keep it respectful and not overly personal. Others have offered bonuses—such as TVs or vacation packages—sometimes arranged through loyalty programs or corporate discounts.

You Could Always Wait

Some buyers choose to wait, hoping the frenzy will settle down. Historically, real estate markets do cool off, and competition eventually eases. However, waiting has its risks. Home prices are unlikely to decrease significantly, and interest rates could rise again. If that happens, those who haven’t yet entered the market may find themselves priced out altogether.

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Financial Downsides

Land used to sell cheaply in rural America, but that is no longer the case. Land everywhere is now at a premium, including plots in the countryside. If you come across cheap land, be sure to investigate thoroughly—engage the services of a surveyor—before making a deal. Much of the land that appears inexpensive is actually useless. For one reason or another, it may not be suitable for building or use. You might own acres of land, but it’s the real estate equivalent of owning a garage full of cars that will never run. It may look good on paper and sound impressive in conversation, but in reality, it’s worth nothing.

In fact, owning useless land can actually cost you money. In some cases, property taxes may still apply. Additionally, there may be liens or rights of passage on the land. In the worst-case scenario, it could become a party or recreational hotspot, where someone gets hurt and sues the owner for the injury. Don’t get involved with land that cannot be developed.

Service Downsides

Even if you manage to acquire a nice piece of land and build your dream home on it, there are costs and inconveniences you might not have considered. Living far away from the noise of towns means more quiet, but it also means more inconvenience.

• In an emergency, no services are close by to assist on an acreage. You will have to drive yourself—or anyone sick or injured—to the nearest town. These valuable minutes could significantly impact the outcome of the situation.
• Phone lines and cable services to acreages are often much more expensive than those in towns—sometimes as much as ten times the monthly fees. While satellites and digital technology are slowly bringing these costs down, you can still expect to budget significantly more for these services.
• Being further away means, well, being further away. Young families may find that their children suffer when living on a plot of land far from town. Bussing to schools can add as much as an hour and a half to an already busy day. This can tire children out, affecting both their social lives and their studies. Additionally, you might find that commuting to and from your job (if that’s the case) is not as easy as you imagined. Shopping will also require more planning—you can no longer run to the corner store when you’re low on something.
• Property in the country lacks many of the conveniences that people in towns take for granted. This includes things like sewage and water hookups. Many acreages require a well for water, so you’ll need to ensure that the well provides a sufficient supply of clean water before deciding to buy the property. Wells can also be a lot of work and may present potential hazards.

You might have an entrepreneurial spirit that tells you to turn an acreage into a money-making investment. While this is certainly possible for many property owners, it’s important to realize that it requires a lot of work. In many cases, it will also involve significant inconveniences. Farms, developments, and small tourist businesses demand a lot of time and effort, often with little profit. Make sure that if you’re counting on making money from your property, you’re prepared for the work involved!

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Homeownership is often seen as a cornerstone of the American Dream. However, the dream can turn into a financial nightmare if you face foreclosure due to unaffordable mortgage payments. Purchasing a home you can genuinely afford is essential to maintain long-term financial stability.

Decades ago, first-time homebuyers typically opted for modest “starter homes.” These homes were reasonably sized, often required some do-it-yourself repairs, and were priced affordably. The goal was to build equity over time and eventually upgrade to a more luxurious home as financial stability grew. Today, many young buyers seek homes with numerous amenities, each adding hundreds of dollars to the monthly mortgage, which makes long-term affordability more challenging.

According to CNN Business, for an individual earning around $50,000 annually, an affordable home price is approximately $80,100. This estimate accounts for income, debt, and average costs for utilities, insurance, and taxes. Bank of America suggests using the debt-to-income (DTI) ratio to assess home affordability effectively. Additionally, consider your total savings, especially in an unpredictable job market.

Prioritizing Needs Over Wants

New homebuyers must be realistic about the amenities they desire. While features like a pool, multiple bathrooms, or a three-car garage are appealing, they can significantly increase mortgage payments. Distinguishing between needs and wants is crucial for long-term affordability. For example, young children don’t require a five-bedroom house or their own walk-in closet. Prioritizing essential features over luxury items can help prevent financial strain.

Forbes Magazine recommends several steps to ensure you’re purchasing a home you can afford:

• Save for a down payment. Aim to put down at least 20% of the home’s value to lower monthly payments and gain instant equity.
• Improve your credit and reduce debt before purchasing to secure a better mortgage rate.
• Research mortgage options thoroughly. Avoid settling for the first offer; shop around for the best terms.
• Know your budget and stick to it. Don’t be swayed by agents to consider homes beyond your financial means.
• Explore various locations and cities to find the best value for your budget.

Overextending financially is a major factor contributing to the current state of the housing market. Nearly half of all homes in the United States are at risk of foreclosure or are already in the process. Many homeowners face difficulties due to job losses or additional debts, realizing that homeownership involves more than just paying a mortgage. Purchasing a home that allows financial flexibility for emergencies is vital.

In time, you may be able to afford a home with all the amenities you desire. However, when buying a home, taking gradual steps is the wisest approach.

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Not quite.

These questions come up often:

• “Why rent when you can buy?”
• “Why make your landlord rich?”
• “Why throw money down the rabbit hole by renting?”
• “Why not buy your own place in the sun”?

If you hang around long enough with real estate types or very proud homeowners, they’ll use every argument to steer you away from that insufferable landlord-tenant arrangement into the lender-borrower relationship.

A relationship, might we add, that could last forever. We’re sure you’ve heard about the mileage that goes into a mortgage. It could go around the Milk Way and back and still be the same as when you first signed for it. The only time you can break a mortgage is if you end up with a cash windfall and pay off your banker – most times with stiff penalties for paying ahead of time instead of on time. A mortgage is as tough as nails.

Renting is Not Just a Question of Money

There are at least two kinds of people in this planet: those who rent because they can’t afford a down payment on a house and those who rent because their lifestyles dictate it.

Those who can’t afford a down payment on a house in spite of the fact that they’ve held steady jobs probably prefer to spend their money on other things. A house is certainly the last thing on their minds and occupies the lowest position in the totem pole of their spending priorities.

That’s one of the many advantages of renting instead of a buying a house. Many opt for the financial flexibility that renting offers. What are the other advantages?

• low maintenance costs– for some renters, the maintenance of their apartment is limited to keeping it tidy. Vacuuming and cleaning are just about the only tasks that will take up your time and cash. Once you purchase a vacuum cleaner and some household cleaning supplies, you’re set up. If the heater is not working or if there’s a leak on the roof, those problems are taken care of by your landlord or janitor.
• get-up and go– apartment living is great when it comes to leaving your dwelling behind at a moment’s notice. You make sure your indoor plants are watered, lock the place and then prance around the earth for as long as you want. There are no worries with respect to leaving your belongings and valuables unattended for indefinite periods of time. As long as the building’s security system is working properly and you’ve got neighbors you can trust to pick up your mail and newspapers, there isn’t much house-sitting you need to do.
• frequent flyer– if you travel frequently on business, renting is a viable alternative especially if you’re the type of employee who gets transferred every couple of years to a new posting. You’re one of these upwardly mobile 30-something guy or gal who lives out of a suitcase more than in a house so owning a house in this particular situation is not as attractive.
• frequent boredom– there are those who easily get tired of their surroundings. One day, the kitchen is too small, next day, there isn’t enough closet space. Next month, you’ll be complaining that your neighbor is weird, the shopping center is too far, or there aren’t enough internet cafes in the neighborhood. So if boredom sets in, what do you do? You simply don’t renew your lease and look elsewhere for a new abode. If you were a homeowner, you’ll have to live with your boredom until you have enough cash to buy another house.
• easy on the pocket– we did say that the preference for renting is not just a question of money, but renting is sure easier on the pocket. No property taxes, no hefty heating bills, no school tax, no renovation costs to shell out money for. This means you have more money set aside for activities you like to engage in: eating out, going to concerts, traveling, pub-crawling, shopping, shopping and more shopping.

We’re convinced there are more joys to renting other than what we mention here, but let’s look at the flipside – buying – and see if that too has its advantages.

Buyin’ a House/Buildin’ Equity

Yes! Building equity appears to be a sound financial decision. Bankers, accountants, and financial planners all sing from the same song sheet: equity is king!

Having equity means different things to different people. You have equity in case emergency strikes, equity for retirement, equity for credibility and financial standing, equity for self-confidence.

When you buy a house, you begin to build equity, albeit slowly. As you make those mortgage payments, those payments are automatically converted into equity. When the house is 50% paid off and is worth, say $250,000 in the market, right away you have $125,000.00 in cash, lien free! And when your house is fully paid, you’ve got 100% equity. In turn, this 100% equity can generate more cash for you. You can borrow against it to invest in your favorite stock, buy a second home or finance your child’s education. Most banks will lend you up to 75% of the value of your home with a low interest rate, because borrowing against your home is the safest loan possible. Should you default, the bank simply seizes your property.

What other advantages are there to buying a home?

• your very own– your house represents your place in the sun. The patch of land that your house is sitting on plus the house itself belong to you and only you. Make sure, however, that your title and ownership deed are tucked somewhere safely.
• family comfort– when the kids start coming – and you’re planning on a large brood – there’s no place to raise them but in a house. No two ways about it – unless you can find an apartment with at least six bedrooms. Most apartments these days are built for 2.5 people. Plus, when there are kids and they get rowdy, you want to seek refuge in your little corner without any disturbance for at least a couple of hours. If you have a basement, you can hang out there, and when the kids and their friends invade your space, you can go upstairs.
• entertaining is easier– your friends, family and colleagues are a permanent part of you and you can’t run away from them. The solution is to host them periodically and your home is the best place to do it. You can barbecue in the patio, picnic on the grass, or have a formal sit-down in the dining room.
• stability and forced savings– if you’re a homeowner, the house has a way of anchoring you and your family, hence paving the way for enduring and stable relationships. A home serves as an archive or storage facility for memories – happy and sad. Lives unfold at home and meanings are negotiated at home, not in the mall!

Don’t be bullied into either renting or buying a house. The decision is yours and will be influenced by your sense of values and priorities. Perhaps homeowners are viewed as more stable and are more attractive to money lenders, but buying a house is a very personal matter.

To us, it’s not so much renting or buying a house. If you have adequate cash stashed away you should be okay as a renter. It is when you rent and squander your resources that a financial crisis can loom far ahead. Just remember that in the long term, owning a house can save the shirt on your back, and spare you from insanity.

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Once you start “hunting” for a home, keep one very important thing in mind – you are looking for a place that YOU like. That’s the most important factor, as it is something you’re doing for yourself. You don’t need to comply with anyone else’s preferences. Of course, if you have children, you must also consider how they will feel about living in the new house. For example, buying a small one-bedroom apartment is probably not the best idea if you are planning to share it with two children.

Consider Your New Beginning

First of all, avoid any familiarity. After all, are you trying to start a new life or bring back memories of the past? Don’t replicate the style of your old home. A new start will be much easier if everything around you is unfamiliar, requiring you to adjust to a new environment. If you have kids, be sure to “consult” with them as well. After all, you will be sharing a home together, and for you to be happy, you need their input. Don’t be selfish.

When it’s time to choose the location, think about whether you’ll be able to find new friends and lead an interesting life there. Choose your location based on your interests. For example, if you want peace and quiet and enjoy activities like farming or reading, moving to the countryside might be a great option. However, this lifestyle tends to appeal more to retired people over the age of 60. If you are still relatively young, or simply feel that way, and want to socialize and meet new people to have fun with, you’ll likely prefer a larger city. That said, buying property in the center of a cosmopolitan city is not your only option. Just make sure that the area you choose has plenty of places for socializing – such as hobby clubs, gyms, bars, restaurants, cinemas, etc. depending on your interests.

Be realistic – at some point, you may want to start dating again. When that time comes, living in a more populated area will increase the chances of meeting a new significant other.

If you’re considering buying an apartment or house in an unfamiliar area, think about renting first. There’s always the possibility that the area won’t appeal to you. Also, keep in mind that this new home may not be your forever home, and at some point, you may decide to sell it. This makes it important to consider the saleability of the property. The house or apartment you buy should be easy to sell in the future, not something you’ll be stuck with forever. When buying, be cautious and pay attention to potential disadvantages – such as nearby railways, road noise, shared driveways, etc.

Be smart, and don’t make rash decisions. What you need and what you want may be two completely different things. If that’s the case, aim for the middle ground. Before making a decision, ask yourself questions like: Do I need a garage? How important is that enormous backyard? Finally, don’t target properties that are beyond your budget.

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