In today’s housing market, this question alone has made the world feel a little indecisive. You talk to one group of people and they are calling you stupid and ugly (okay maybe not ugly I hope) for wanting to buy in this housing market, whereas you talk to other people and they say why are you so ugly (not sure why everyone keeps calling you ugly) for wanting to rent and throw away your money to a landlord charging their inflated monthly rent. It’s a rock and hard place, that’s why I am going to give you a perspective on both to help you find your ideal situation.
I have made videos about this in the past, but it’s a little different now, the market has changed, home prices are higher, cost of goods are higher, wages aren’t climbing as high, but the one thing that hasn’t changed are the checkpoints in your life to where moving just makes sense, whether it’s for work, relationship, kids, family, or they finally opened up a chick fil a on that one side of town. Whatever the situation may be, it happens regardless of the market conditions. With that being said, I am going to touch on the pros and cons of renting, pros and cons of buying, and some situations and factors to consider to help you make the best decision possible.
Renting is something that has earned a horrible reputation, not only in the real estate industry, but in several cultures that put high value on the American Dream (aka homeownership), but that doesn’t mean there aren’t pros to renting a home, otherwise why would this option even be considered or even be a thing in the first place. The biggest reason, especially in these expensive times, is it doesn’t cost a whole lot of money upfront, you don’t have closing costs, you don’t have this fat down payment, an emergency fund in case something breaks, you’ll typically need about 1.5-2 months rent upfront which includes the security deposit, and could or couldn’t include pet fees and other cleaning fees. Since there isn’t such a huge amount of money needed up front or to save for “what if”, you can allocate those funds toward other debts you may have instead of having these back burner funds on standby waiting for your roof to cave in, because that’s going to be on your landlord’s dime, not yours.
Another pro about renting a home is it gives you freedom. Most people who buy a home that don’t plan to rent it out in some capacity, settle down in that area, build a family, are closer to their jobs, but when you’re renting, you don’t have to settle down now, maybe you’re still trying to figure out what you want to do in your life, exploring career opportunities, adventuring throughout different communities in the mitten, or maybe you travel a lot, and want the ability to jump around a lot without having a large commitment like a mortgage weighing you down.
Low up front costs, no maintenance or repair costs, and freedom make up the pros, but what about the cons? The biggest con that most people will tell you, especially in the real estate industry, because everyone treats equity like gold, which it is, but there’s a time and place is it does not build equity, and for those of you that don’t know what equity is it’s essentially the amount of your home that you own o the current market value, minus the mortgage you owe on it. The next reason is it lacks the tax benefits that you would be able to take advantage of if you owned a home. With the freedom to not commit, there’s also the lack of stability, which may seem a little ironic, but it’s true. You may have the ability to jump around if your lease agreement allows it, but your landlord can do the same. I’ve seen it time and time again where landlords will just decide to sell the home and the tenant has 30 days or so to get out of there and find somewhere new. It adds a lot of stress, especially since it feels like everything was fine yesterday and you were then blindsided today. The last con i’ll touch on is it tends to be costlier in the long term, and a lot of people don’t understand why that is, but remember, a landlord lists a monthly price that accounts for the monthly costs of owning the home (mortgage payment, utilities, taxes, interest, etc.), then tacks on more money so they aren’t just breaking even every month, and actually making profits.
PROS & CONS OF BUYING A HOME IN MICHIGAN
Pros Of Buying A Home In Michigan:
Next, I want to tackle the pros and cons of buying a home. Starting with the pros, the first and most obvious point is it’s YOUR home, it’s no one else's, you can put in those orange shag carpets (or take them out), recreate the mona lisa on your walls because you went to wine with a twist one time, and you can buy a new stove because that one landlords needed to be lit with a lighter and the knob turned at a 45 degree angle. You can being your creativity to life. Another pro to having this home be yours is of course the equity, you have the ability to borrow money against your home for renovations, vacations, or leave in there until you sell so you have more funds to go toward the next home.
With equity in mind, there’s also appreciation, historically speaking real estate values increase 3-7% a year, over the pandemic years it was more like 10-12%, but historically, you’ll be in the green, and that’s why well known agents like Barbara Corcaran talks about just buying a home, it doesn’t have to be perfect, just make sure you can afford it, and just get your foot into the door with homeownership because even if you don’t throw thousands into the home, just living and holding onto it will ensure appreciation assuming you maintain it at least. The last pro i’ll mention aside from the tax benefits which renting won’t get you, is the stability. Assuming you’re continuing to make your payments, you have stability, not a place where you feel like you can’t fully relax, because you never know when the landlord is just going to sell it from under you.
Cons Of Buying A Home In Michigan
Switching gears to the cons, like I mentioned when talking about renting, when it comes to buying a home there’s a significant up front cost, even if you are a first time home buyer who’s putting 3.5% down on the home, along with paying 3-5% for closing costs, then making sure you have an emergency fund in place for when things fall apart, and when you don’t put 20% down on a home, you’ll also be paying private mortgage insurance or PMI until you reach 20%. And that’s something that renters don’t have to do. Another con a lot of people don’t talk about and that’s the need to be organized. Growing up in your parents home you probably remember the big ole filing cabinets with endless amounts of paper stuffed in there. From the mortgage statements, tax bills, utilities, HOA, homeowners insurance, etc. all these items are something you need to pay attention to, make sure you’re not getting charged too much, and it can be a little overwhelming at first, whereas while you’re renting you're probably just mailing a check or using some cash app type service to have the landlord do all that thinking for you. All landlords are different of course. The last con that I touched on a little bit already is the maintenance. People often underestimate the amount of time and money it takes to maintain a home. It’s borderline not too much but also just enough to be overwhelmed about if there's not a routine in place, and if you’re sitting there like I have no idea how to maintain a home, I’ll link a video that goes over a maintenance guide for a home that i’ll link in the below for you.
Okay Andrew, pros and cons of buying and renting a home, I still have no idea what the heck to do. And that’s fair enough, it’s a tough decision like I mentioned so i’m going to touch on the current buying and renting conditions as well as throw some other perspectives and scenarios your way to help your decision.
RENTAL MARKET IN MICHIGAN
So what does the rental market look like right now? Well, if we first take a look at the nation as a whole, it’s looking promising for two reasons, #1 is due to all the negative news around Airbnb and their fees, landlords are switching their efforts to provide these homes as long term rentals instead. The second reason has to do with all the corporations that have been buying up a lot of homes and communities to rent them out. So when taking a look at nationwide data that’s why you’ll see an uptick in that department, but that doesn’t necessarily answer the question for Michigan’s rental market.
This article talks about how despite the national slump in Airbnb's, Michigan vacation rentals are going gangbusters, keep in mind this includes all areas of Michigan even the more touristy areas in the northwest. So why gangbusters in Michigan? Well, most slumps are happening in heavily populated cities, where there’s plenty of properties and prices to choose from. In Michigan, this short term rental market is considered rural, and waterfront areas. As far as rental data I'll jump on Zillow rental manager because the majority of rental listings are placed here. The median rent price was #1,350, which is an increase of $50 month over month, but year over year, these prices are down $70. There are also over 11,000 rentals available in Michigan, where the majority are between $800 and $1400 a month. The rental market is considered to be cool based on demand. Throughout pandemic times there were bidding wars for rentals, but now we are seeing them sit a little bit longer and there’s sometimes flexibility with the landlord to accept less than it’s listed for. So that’s an improvement.
BUYING MARKET IN MICHIGAN
As far as what the current buying market looks like right now, I’ve talked a lot about this in my recent videos, but for those of you that haven’t seen them, the last one in particular talks about the mistakes home buyers and seller making with a focus on people thinking the market is the same as it was in 2020 and 2021, but the reality is, it’s much different (at least in Michigan). People think there are endless bidding wars, above asking price offers, and people doing whatever they possibly could to stand out from other offers. Well, it’s slowed down since then. The demand has cooled, and buyers have a little more time and space to breathe and make well informed decisions without jumping on a home they will probably get sick of in a month or two. Of course, there are still areas in Michigan that do have few extra offers and above asking price bids, but that’s where your patience is going to be necessary. You might not land a home today, tomorrow, next week, or months from now, and that’s something you need to accept to ensure you don’t jump on something with the mentality that there’s nothing better, because I promise you, there always is.
There’s no need to make these overly bold compromises that make your home choice everything you don’t want or need.
I’ve mentioned this in several other videos of mine, but it’s extremely difficult to assess Michigan’s housing market as a whole since there are so many different nooks and crannies we call cities, townships and counties that range in price and offerings, so having that knowledge about the area you’re looking to move to is also very important. At the end of the day, people don’t want to overpay for a home, so in order to best combat that, you’ll want to know a thing or two about the market you’re thinking of moving to and getting a Realtor that knows the area helps a lot to get another opinion. You’d want to keep in mind the home value trends, are they headed into the red or are they shooting for the green. Seeing the homes sold, the homes for sale, the year over year and month over month market data for that specific area can tell you a lot about the direction of that local housing market.
HOW TO DECIDE?
With Michigan’s rental and buying market now, how should that impact your decision? I pinky promise it’s not just the Realtor in me, I think the long term goal for everyone should be to own a house, because I see the value in homeownership and I can bring up historical data over and over again to show how homes have appreciated. With a housing market that’s been doing a few double digit increases in appreciation, it’s been easy to buy a home for a few years with a guarantee that you’ll profit, but as the market has slowed, you’re actually needing to add some value into your property to get the greatest amount of returns in the shortest time.
The answer to your questions actually comes from asking yourself more questions.
What does your financial situation look like right now? (what’s your savings, house and emergency fund look like? Do you have a good credit score? Is your debt manageable? All these questions are crucial to assess your financial situation). Can you afford a home with where the mortgage rates and home prices are now and not where they are projected to be? What does your job situation look like? Of course, we don’t want to say your life revolves around your job, but you also don’t want to self sabotage yourself financially by lacking job security. And lastly, think long term. Jot down what you think your life will look like in the next 7-10 years, where are you? What are you doing? Is there a family? Are you still rocking that bachelor lifestyle? Take all those notes and compare it to where you’re looking for a home now, does it fit? If you plan to stick around here for that time period, buying a home may be more in your best interests. Are you thinking you’ll be a mime in California instead? Then by all means, rent for now until you lockdown that quiet role of yours. And if you are someone who’s leaning more toward buying a home and you’re wondering will I overpay, what’s staying within my means actually look like, i’ll link another video I made in the description which tackles that very much in depth.
For those of you that are juggling these options in your mind day in and day out, what is the contemplation you have? Throw your questions, thoughts and concerns in the comment and let’s have a conversation.
Andrew McManamon is a Michigan REALTOR® with Signature Sotheby’s International Realty and provides real estate services to Buyers, Sellers and Investors throughout SE Michigan including Livingston County, Oakland County, Washtenaw County, Genesee County & beyond. Andrew has become one of the rising stars of Michigan real estate agents. Prior to his real estate career Andrew was responsible for managing a senior living facility in Brighton, Michigan as a dining supervisor and an activities assistant. Andrew’s passion to help people is unlike any other, and he continues to strive to be best resource he can be. Andrew graduated from Cleary University in Howell, Michigan with a double major and currently resides in Brighton, Michigan.