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Business // Thinking Smart
David S. Chang

To Rent Or To Buy A Home?

Hawaii is one of the most expensive places to rent or buy real estate. In fact, the cost of living in Hawaii is 30 percent higher than the national average!

According to the Honolulu Board of Realtors, the median price of a single-family home on Oahu is $640,000 and a condo is $346,700.

A 30-year fixed mortgage at 3.5 percent will be approximately $2,900 a month for a home and $1,560 for a condo.

If you include property taxes and other costs, it could run an extra 5 percent.

In comparison, the average rental in Hawaii is $2,300 for a single family home and $1,500 for a condo. Renting may cost less now, but rents have doubled in Hawaii the past 20 years, whereas fixed mortgages are set for the life of the loan.

If you are trying to decide to either buy or rent, here are some things to take into consideration.

* How long will you live there? Renting is generally ideal for people living in a location less than three to five years. If you buy and sell within that time period, you might not get your return on investment. Selling costs and real estate commissions can amount to 6-8 percent of the total price, so if the property hasn’t appreciated by that amount, then you will sell at a loss. If you, however, plan to live in a place for a long period of time, better to pay for your mortgage and build equity instead of your landlord’s! According to a Zillow “rent vs. buy report,” it will take 11.5 years to break even if you buy a house in Haleiwa, 7.5 years in Kailua, 6.7 years in Honolulu, and 3.5 years in Ewa Beach. Visit artofthinkingsmart.com to see the full Zillow report and also the New York Times “rent vs. buy calculator.”

* Additional costs in owning a home. If you plan on buying a home, be prepared to pay additional costs. Unlike renting, you will have to take care of all maintenance issues. Some real estate experts recommend saving 1 percent of the home’s value for yearly maintenance fees.

You also will have to pay for homeowner’s insurance, which is higher than renter’s insurance.

There also are property taxes and water/sewage fees, which renters usually do not pay.

Homeowners, however, can deduct the mortgage interest and property taxes. Buying a home also requires large upfront costs. Most buyers need to have at least 20 percent of the cost for a down payment and pay transaction costs that include loan setup fees, property inspections, escrow and title fees, mortgage insurance and others. Renters generally will have to pay one month’s rent as a deposit. If you can’t afford these costs, rent instead.

* Location, location, location.

Renting can make sense in one area while not making sense in others. Some will rent in one area until they can afford a house in another area.

According to Maureen Fukumoto, principal broker at Help-U-Sell Realty Pro, “It’s important to take into account future rents and prices. If rents are rising more in an area than prices, it may be a good time to buy.”

As seen in the Zillow report, each area is different, so the break-even point on renting or buying changes. Talk to a real estate professional to compare the rental and purchase prices and see what the best option is.

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