Buying versus Renting - Ying & Yang

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For those of you who our newsletters and videos. following Boomers Offshore, you know we advocate renting before buying.  And contrary to some people's opinion, we have never advocated the concept of NOT BUYING... until now.

While home ownership is a viable strategy for some, older seniors, especially those on fixed incomes or whose life expectancy may extend beyond that of their nest egg, some of you may want to reconsider the notion that owning is better than renting.


Since 2008, we have been doing more research into the strategy of renting versus buying.  I have been reading websites, talking with financial planners and talking with many individuals who are planning to take the journey down this very slippery slope.  I have come to the conclusion that the ONLY people who unequivocally advocate buying over renting are people whose livelihood is derived from the buying and selling of property.  I guess that should not be a surprise to anyone.

Don't get me wrong, I do believe in the concept of home ownership.  Had it not been for the buying and selling of over 9 homes throughout our life, a significant portion of our current nest egg would not exist.  And even today, there are days when Fran and I wish we owned the home in which we are living.  I would love to make decorative changes and improvements, but in the end, I am only the caretaker of the property.  I honestly miss those joys that go along with home ownership but no way do I miss all the hassles and bullshit. 

Today when the A/C breaks, a toilet doesnít flush, outside security lights don't turn on or the pool pump suddenly stops working, I have but one phone call to make and thatís to my property manager.  No fuss, no muss and no additional out of pocket expense.  For God sakes, Iím a 62 year old guy with maybe 25 years of life ahead of me.  For me, life is too short to be concerned about such things.  I donít give a ratís ass about investment potential.  Thatís why the $300,000 we would have spent for a house is still generating a healthy income (along with the rest of our hard earned nest egg).  What would have been our HOUSE PURCHASE BUDGET is now our TRAVEL BUDGET!

Through my research, I have compiled comments made by those who promote the concept of buying over renting.  While I might agree with some of their logic, I do take exception with a lot of it.  Since their blogs and websites appear one sided and offer no counterpoints, I wanted to add my rebuttal and offer a bit of yang to their ying!

They say...   I say...

Owning your own home allows you complete freedom to do whatever you like, whenever you like.  It all boils down to "Pride Of Ownership."

When you own your home, it appreciates in value.  Should you decide to sell, there is an excellent chance you will recoup your investment and then some.

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This is the most compelling argument in favor of owning your own home.  I can't disagree with it for I too yearn for the days when I would enjoy fixing up my home. 

However, today we are retired and our nest egg will provides us financial sustenance for the remainder of our lives.  Our priorities have shifted to other things such as travel, fun and freedom.  We go wherever we want, whenever we want.

The days of using home purchases as a method of investing in the future took a serious hit in 2008 when the housing market imploded.  Housing valuation is not appreciating at the rate it was just a few years ago, in fact, some areas are reporting complete stagnation and even regression.


Costa Rica today is a Buyers Market.  Waiting five years to buy will only result in you paying more for the very same property had you purchased today.

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The price for homes today are about HALF the price of where they were 5 years ago.  It is true, we are seeing some rebound in the economy but it is nowhere near what is being reported. 

As money availability improve in the US and Europe, buyers are returning, but not in the numbers they were back in the day.  Those that are buying homes today are paying prices closer to what they were paying back in 2006/2007.


The availability of really nice homes for the purpose of as a long term rental, do not exist. 

Owners do not want to subject their investment properties to low price renters.  The owners would rather let the properties sit, rather than rent.

Owners do not want their luxury homes to rent for $1000-2000 a month.

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I can't speak for all of Costa Rica, but from where I sit, there is no shortage of nice homes throughout all of Guanacaste and the Nicoya Peninsula. 

Owners who paid $5-800,000 or more for homes 7-8 years ago, now want to sell their places for a million dollars or more; but that's not happening.  Instead, many have decided to rent their homes until the economy rebounds.  Unfortunately, nobody knows how long that timeframe will be, but most are certain that it will happen.  Just look around at the new infrastructure popping up here in Guanacaste.  We have a new, modern airport terminal, a new CIMA Hospital and (in time) a new Clinica Biblica mega hospital out by the airport.  This area will spring back and when it does, the prices will respond accordingly.  But for the time being, stagnant is the operative word.

Any house that has been on the market for a year or more is ripe for long term rental.  Just because it is not advertised as a rental does not mean that it is not.  If you see something you like, float a rental offer.  From the owner's perspective, it is better to collect some money than none at all.  An owner, especially one who does not live here, should welcome the opportunity to have responsible people overseeing their property.  Renters can make sure the property is properly cared for and secure from random crime while at the same time recoup some of the recurring operational expenses.  Its better than letting the house sit empty.

Most owners are not stupid.  Many that I have talked to now realize that it might have been better if they rented instead of purchasing.  I've said this before and it bears repeating... It is easy to buy here but damn difficult to sell.  Fact... not opinion.


Those who do insist on renting houses in the $1-2,000 range will find it necessary to lower their expectations and their standards in order to find a place to live.

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This is total nonsense.  Very nice homes, all built with US amenities, can easily be found from $650 - $1800 a month right here in Guanacaste.  All have AC, granite kitchens and modern appliances while many have swimming pools and lovely gardens.  Some have a incredible views while others are located very close to or right on the beach.  Those looking to live in the Central Valley can get even more house their rental dollar but available inventory is much lower. 

The thought that you may have to live in a dark "tico house" with suicide showers and razor wire for protection is absurd.  It is not necessary to lower ones standards in order to live nicely.  In fact, I just visited a 1 one bedroom condominium, located directly on the beach in Playa Potrero (near Flamingo) for only $800/month.  DO YOUR RESEARCH!


The market is rebounding and prices are going up.  Landlords are raising rents or worse, they are telling you to get out because the house has just been sold. 

Inventories of available homes are at their lowest point in years.  Soon there will no places left to rent

Ť

YES, the market is rebounding but NO, landlords are not raising rents as we are lead to believe.  Costa Rican law forbids that.  If you have a lease, and you are paying in US dollars, your rent cannot be raised for three years.

When you rent a house that has a potential sale associated with it, you should negotiate a clause into your rental agreement that gives you ample time (minimum three months) to vacate and find another place.  In addition, avoid vacating during high season, especially December through March, because rental prices will be at their highest and available inventory at its lowest.


Here is a powerful argument/scenario for why one should buy a home instead of renting. 

You find a nice home for $300,000.  But instead of buying, you have decided to rent that home for two years for $1500 a month.  Twenty four months later you have paid out 36,000 and nothing to show for it but your receipts. 

Now, after two years of renting, you decide you like the house so much you decide to make a purchase offer.  But after two years you have seen that the market has changed.  Home inventories have declined and it is now a Seller's Market instead of a Buyer's Market.  That same house will now cost you 10-20% more.

At least that's the line you were originally fed when you rented.

Ť

This is how I see it.

I'll rent for two years and pay the $36,000.  But at the same time, the $300,000 that I would have originally spent to buy the house, remained with my Financial Planner earning 5% over that same period, $30,000,  That reduced my actual out of pocket rent to just $6,000 for 24 months or $200/month.

However, if I owned the house, I would have had to pay an additional $600/month in HOA fees, $250/month in luxury taxes and $70 a month for water.  But wait it gets better.  A year ago we experienced a minor earthquake and the house incurred some damage.  Some tiles fell off walls ($450) and the pool developed two cracks and required overhaul ($2100).  In addition, two AC units (over the two years) required replacement ($2000).  In total, overhead and maintenance costs ran an additional $26,630.

Now subtract the $6,000 I spent for rent from the additional cost of ownership ($27k), renting actually saved me $21,000

But wait... let's make it more interesting.  Let's say the new neighbors who just moved in were "neighbors from hell."  They ran an all night auto repair shop in their front yard.  All night long we hear the sounds of engines, pneumatic wrenches and tires squealing.  When ask to tone it down, they threatened your life.  You call the cops but they do nothing.  What to do now?  You can't move... you own the damn place!

I'm not making this up, this is a true story!  As a renter, I can move.  As an owner, I'm stuck in Arroyo mierda sin una paleta, in other words... "up shit creek without a paddle."


Don't get me wrong.  I am not against buying homes.  What I am against is the fear and intimidation expats are confronted with when they plan on moving here.  Jeez, I never thought I'd be saying this, but speaking as a senior citizen, barring a financial apocalypse, our nest egg is sufficient to last Fran and me the rest of our lives.  We don't need to make any more money and we certainly don't need to take on the burdens and hassles of maintaining a home.  What we need to do is carefully manage what we do have and make sure it supports our day to day livelihood. 

If I was 30 or 40 years younger and had the money, you bet your ass I would be seriously looking at investing in Costa Rica.  That makes sense.  But for older people, who are looking to retire here on a fixed income... NO I would not recommend buying.  In fact, AARP has reported that seniors are selling their homes back in the States at record rates and then renting.  They are talking the proceeds of their sales, combining it with Social Security and pensions and living the remainder of their lives at a higher level of quality and joy.

There are those out there who will disagree with me.  If you care to respond then please feel free to do so, just keep it civil.  I will be happy to post your comments.


In closing, here is a short video produced by my friends Michael and D'Angelo from TravelCostaRicaNow.com.  In the short span of 1:40, Michael has hit the nail squarely on the head.

Watch and learn!

 

The purpose of this article was NOT to bash realtors nor was it to convince you never to buy a house in Costa Rica.  It is designed to give you reason to pause and think about your objectives and desires. 

Can you imagine what would happen if House Hunters International ever did a show about a topic such as this!  Holy hell... the world would implode!!!

J



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