- The Washington Times - Friday, August 3, 2001

Is it better to rent or buy? Just when I think I have answered this question for the last time and pointed renters toward a good "How to Buy a Home" Web site, I receive this letter from a disgruntled high-rise tenant in Arlington:
"I have been a loyal renter for over five years at the same apartment building in the Crystal City area. I have seen annual rental increases go from 2 percent to 3 percent to 5 percent to 8 percent to now 11 percent. Isn't there some kind of limit to this ridiculousness? This just is not fair. Do rules vary from jurisdiction to jurisdiction?"
In the world of low- and moderate-income rental property, there are rules. The government steps in with its calculations on what the property owner can charge. The formula to determine fair market value includes such factors as the net operating income (NOI) for the multifamily complex and the median household income of renters.
With private-sector housing, all that really matters is the NOI of a property: the gross rents collected, minus uncollected rent, taxes, government fees, insurance, maintenance and repair. As property values increase, so do the taxes for the landlord, who must cover the cost increase by pushing up the rent. Coupled with this factor is the law of supply and demand. If you live in an area where the supply of rental properties (as well as homes for sale) is dwindling, that will translate into higher rents.
(A good Web site for researching your area's rent statutes is Rental Housing Online, www.rhol.org . There you can find information for landlords, tenants, investors and more. The U.S. Department of Housing and Urban Development, www.hud.gov , also has some good resources for renters.)
Increases in rent is one of the reasons I encourage renters to buy a house. When you purchase, you lock in your monthly payment for the next several years, as most homeowners move about every seven years. In addition, you begin to build cash equity in the property that can be used later for other investments or expenses, such as college tuition, purchasing another home, paying off consumer debt, vacations, retirement, etc.
Another benefit to purchasing is that all of the mortgage interest you pay each month is deductible when you file income taxes. For instance, let's say you purchase a condominium for $150,000 with 3 percent down that would give you a loan payment of $1,017 of which $909 per month would be interest for the first year. The first-year tax deduction would come to $10,908. A homeowner in the 28 percent tax bracket would save $250 per month in taxes $3,054 for the year. Besides all of this your "rent" never goes up. Unless you refinance, the monthly payment stays at $1,017 year after year.
I tend to take exception to the writer's other complaint: "This just is not fair." Well, fair for whom? For an investor, it's very fair that the property owner should be able to increase the cash flow from his or her investment if the market demands it just like investors in any other endeavor. I never have heard anyone say it's not fair the stock market keeps going up. (There's plenty of griping, however, when the market takes a tumble.)
The investor has taken on all the risks of providing housing: the mortgage, interest payments, taxes, maintenance and management of the property the cost of which keep fluctuating, usually going up. Trust me, this is not a cheap investment. In exchange for shouldering the risk, the investor charges rent that he or she hopes will cover those expenses and provide a profit at the end of the month.
For renters tired of rent increases, my advice is to do something about it. Begin paying yourself by saving money from each paycheck for a down payment, reduce your debt load (which is the largest barrier to homeownership) and research the many, many private and public programs available to help people buy a home of their own. Just a little research and budgeting can help stop the rental increases year after year and put you onto a more solid means of housing.
M. Anthony Carr has written about real estate for 12 years. Send comments and questions by e-mail (manthonycarr@erols.com ).

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