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Ask Our Broker Rent vs. Buy

QandA WITH PETER G. MILLER

When Owning Might Not be Best
BY BARBARA BALLINGER
CTW Features
several financial and real estate First, timing a market almost ate terms in their favor, Raday
experts. always is impossible. Second, says. At the same time, they
For Better or for Worse: Reason No. 1 is that home while prices have cooled a bit or shouldn’t think that sellers are
Sometimes, the American prices may not have finished aren’t rising as much in some giving away their properties.
Should My Tenant Install dream needs tweaking. Owning a dropping. If you aren’t yet a areas, they’re also not plummet- Cashing out isn’t the only rea-
a Washer and Dryer? home in a great location may not
always represent the best finan-
homeowner, you may be smarter
to continue renting and buy only
ing in places like New York City,
he says.What’s happening
son to rent rather than buy, says
Paul Purcell, another real estate
cial and logistical decision, after prices hit rock bottom. instead is that inventory has consultant and partner in
despite the big uptick in real There are two fallacies in this increased due to more home- Braddock & Purcell in New York.
Q: I own an investment condo. estate appreciation in recent argument, however, says real owners deciding they want to A big gulf still remains in
My tenant has offered to install her years. Certain situations and estate adviser Edo Raday, who take out the equity they’ve built Manhattan between the price of
own washer and dryer, but I’m con- places make renting a better heads up his own eponymous up.The result is that buyers now
cerned about liability. How should I choice, even if temporarily, say company in New York City. have greater leverage to negoti- See RENT VS BUY Page 2
handle this?
A: Is the unit set up with proper con-
nections, vents and drains to handle a
washer and dryer? If yes, then the assumption should
be that a portion of the unit is intended for that pur-
Credit Score:Your Path to a New Home
pose. BY CHARLES SCUTT
CTW Features
However, if that is not the case then you should get
advice from the condo association before going fur-

L
ike an athlete playing in the
ther.There can be problems with leaks, venting,inade- big game, it’s always impor-
quate electrical service,etc. tant to be mindful of the
You likely want a special addendum to the lease to score,especially if you’re yearning
limit your liability and,as always, the tenant should be to claim the biggest prize of all: a
new home.And the key to obtain-
required to maintain renter’s insurance. Speak with an ing a mortgage loan with a pre-
attorney for details. ferred rate is to have a favorable
credit score.
Q: I own a home that was built in 1964. It's a A credit score is a fast and easy
somewhat standard two-story ranch-style house way to distill the information
in an affluent neighborhood. The downstairs from a person’s credit report into
a simple, three-number value.
family room has vinyl flooring that is shot, but Your credit score is based on an
I'm not sure I should invest too much in redoing array of factors, such as your out-
it since I'm looking to sell the home within the standing debt, payment history,
next five years. Would a new floor affect the sale? length of credit history, recent
A: Yes. If people see shoddy flooring they may won- credit activity and types of credit
der what damage they don’t see and that hesitation in use.
“A credit score is like a report
can be a major hurdle for a would-be buyer. card of how well you are doing
Do the work now.You’ll enjoy the new floor and it managing your credit,” says Brette service.“But there are numerous name for
likely will be cheaper than in five years. Sember, author of “The Complete credit scoring formulas that have their FICO equivalent.
Credit Repair Kit” (Sourcebooks, been created by various compa- Each agency also uses dif-
Q: I’m considering a loan that requires inter- 2005).“It’s a quick, simple way of nies.The scoring ranges can vary ferent ranges. For instance,
est-only payments for the first five years. Is this a summing up what kind of con- from model to model.” Experian’s range is from 330 to also can
sumer you are and how you man- The FICO model ranges from 830, while Equifax follows FICO’s request a
good financing option? age your credit accounts.” 300 to 850.There is not one traditional 300 to 850 span. free copy toll-free at (877) 322-
A: Interest-only financing works for some borrowers Your credit score is going to magic number that says you have Sember says the best way to 8228.
but not for most. It’s likely to be a bad choice in a mar- be the first thing a potential a good or poor credit score, but improve your score is to regularly With either method, you’ll be
ket where values are stable or falling. mortgage lender is going to look using mortgage lending guide- obtain your credit report and to able to order reports from all
Imagine you borrow $200,000 at 6.5 percent for 30 at,“and first impressions count,” lines, a score of 650 or above proactively work toward improv- three credit bureaus at the same
years.The first five years are interest-only, so you pay Sember says.“Improving your indicates a good credit history, ing your credit history. time, which offers the advantage
credit score will make it easier says Williams. Under the 2003 Fair and of comparing the reports all at
$1,083 for principal and interest.A self–amortizing loan
for you to get a mortgage.” Currently, the national average Accurate Credit Transactions Act, once, or at different times
at the same rate would cost $1,264 a month – an addi- Ultimately, the lower your FICO score is roughly 723. In gen- all Americans are entitled to a throughout the year.
tional expense of $181, at least for the first 60 months. credit score, the lower your inter- eral, scores exceeding 750 typi- free copy of their credit report Avoid accessing your report
In year six, however,the interest-only loan has a est rate, says Scott Bilker, founder cally are considered excellent, once every 12 months from each directly from the credit agencies,
$200,000 balance and 25 years remaining on the loan of DebtSmart.com, Barnegat, N.J. while those below 620 often are of the three credit-reporting which may try to charge you a
term. If the interest rate for the entire 25-year period The best-known credit score, deemed as risky. agencies.You can obtain your fee unless you qualify for a com-
FICO, was created by Fair Isaac The three major credit report- complimentary report by visiting plimentary report, or from suspi-
continues at 6.5 percent, the monthly payment for Company, says Cate Williams, a ing agencies – Experian, www.annualcreditreport.com, cious Web sites.The Federal Trade
principal and interest would be $1,350 – a jump of vice president for Money TransUnion and Equifax – rely on which is the only officially Commission warns consumers to
$267 a month over the interest-only payment. Management International, the FICO model to produce authorized Web site for con- be cautious of companies that
Chicago, the nation’s largest non- scores for lenders and business, sumers to access their credit make claims regarding credit
See ASK OUR BROKER, Page 2
profit credit and debt counseling although each agency has its own report online for free. Consumers See CREDIT Page 2

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© 2005 Content That Works – All Rights Reserved • contact us at 866-6CONTENT or CONTENTTHATWORKS.com for licensing information.
 RENT VS. BUY
CONTINUED FROM PAGE 1
townhouses, condos and cooper-
ative apartments versus rentals,
he says.A luxury one-bedroom
rental in a prime location may go
for $3,000 a month while a simi-
lar unit might cost close to $1
million to purchase, Purcell says.
Other good reasons to rent, at
least in New York, he says, are
the hefty supply of good rentals
with lots of bells and whistles
and the absence of any stigma in
renting, which isn’t always the
case in other markets, he says.
The high cost of owning a
home despite lower interest
rates is another incentive to rent.
After homeowners make a down
payment and pay closing costs,
they still have property taxes,
homeowner’s insurance, and reg-
ular and surprise maintenance
costs to bear on an ongoing
basis, says Eva Rosenberg, a tax
expert in Los Angeles who writes
the tax column
www.TaxMama.com and
authored “Small Business Taxes
Made Easy” (McGraw-Hill, 2004).
To make matters a bit worse,
homeowners face the lost-oppor-
tunity costs of investing all those
dollars in another vehicle such
as the stock market, she says.
In some cities, however buy-
ing is more viable because the
cost to buy and maintain a home
is so much lower than elsewhere
CREDIT
CONTINUED FROM PAGE 1
repair.These companies won’t
do anything for you that you
cannot do for yourself at little or
zero cost.
Be aware that while the
report itself may be free, acquir-
ing your credit score number
typically carries a fee, usually
between $5 and $10.You can
purchase your credit score
when you request your free
credit report.
“There are no free ways to
obtain your credit score,”
Williams says.
When reviewing your credit
report, read over all the informa-
tion carefully and make note of
any inaccuracies you see.You’ll
want to report them to the
major credit agencies and
request that they make changes
to your report.
“If there are true errors in
your credit report or if you need
to have additional information
© 2005 Content That Works – All Rights Reserved • contact us at 866-6CONTENT or CONTENTTHATWORKS.com for licensing information.
and because there are few attrac-
tive rentals. Kansas City is a good
example, says Kris Drake, branch
manager for Plaza Mortgage,
Overland Park, Kan. In his area, a
two-bedroom, two-bathroom
house with garage and basement
might cost only $160,000 to
$180,000, while a comparable
rental might go for as much as
$1,300 to $1,400 a month.
Money should not be the only
reason to rent rather than buy.
Some don’t know where they
want to be long term due to a
divorce or death of a spouse or
partner. Or, they may find them-
selves in a new location. Renting
first rather than locking them-
selves into a purchase gives
them the benefit of time to
explore their new hometown.
Sharon Bond and her husband
Keith took this route when they
relocated to Chicago from New
Jersey because of Keith’s job.
They didn’t know the city and
decided to rent in a convenient,
downtown building close to
Lake Michigan.After a year, they
were ready to buy, but they pur-
chased farther north in the city
because of the more affordable
prices.After another five years,
they moved to the suburb Park
Ridge because of Sharon’s job in
nearby Glenview.
Does she regret initially pay-
ing rent? Not at all, she says.
“We’re glad we got to know the
city.Another couple who moved
at the same time we did moved
reported, it will take time to cor-
rect, but it will improve your
score,”Williams says.
The best ways to bolster your
report and, consequently, beef
up your score, are to reduce the
amount of debt you owe, pay all
your bills on time and within
the agreed terms and only open
new accounts when it’s
absolutely necessary,Williams
says.
Be aware of how many open
accounts you have in your
report and how much money is
available to you, said Sember.
“And don’t apply for loans you
don’t want because these are
recorded as inquiries about your
credit and will count against
you.”
As a rule of thumb,Williams
says it’s wise to review both
your credit report and score 60
to 90 days prior to seeking a
mortgage loan, which should
give you enough time to have
any errors corrected.
© CTW Features
right into a suburban home and
never got to know Chicago,” she
says.
The idea of renting also can
provide peace of mind to those
who no longer want to worry
about maintenance issues associ-
ated with owning a house.
Seniors, in particular, may relish
not worrying about having to
call a plumber in the middle of
the night, and they also may like
the idea of living in a community
with others the same age and a
plethora of activities, says Cathy
Rosebaugh, a seniors real estate
specialist and president of
Alterna Home Solutions, Raleigh,
N.C.“Needs change as people
age and as health issues devel-
op,” she says.
Whatever your pocketbook or
reasons to find a new place to
live, consider your time frame,
too, suggests Sheryl Garrett, a
financial planner and author of
“On the Road: Buying a Home”
(Dearborn Trade, 2006).
“You shouldn’t buy unless
you’re planning on staying in
that residence for at least three
years,” she says.“There’s no harm
in taking your time to make a
decision since hurrying can
cause you to make a big mistake.
Buying a home is such an emo-
tional decision.Try and step back
and remove the emotion and
focus on the financial and
lifestyle issues,” she says.
© CTW Features
Ask Our Broker
CONTINUED FROM PAGE 1
However, payments in the second phase for interest-
only loans are typically based on 6-month or 1-year
adjustable mortgage rates. If the rates go higher, then
the math changes radically. For instance, at 7.5 percent,
the new monthly payment for principal and interest in
the sixth year would be $1,478.The original fixed-rate
payment, of course, still is $1,264.
Is the higher rate a problem? Not if you have the
income to support the monthly payment. But what if
your income does not increase in the next five years?
What if interest rates go to 7.5 percent, 8 percent or
even higher?
For a number of years we have seen a general decline
in interest rates, so adjustable-rate mortgages have been
a good option. However, we may be at a point where
rates have begun to rise for a lengthy period. If that’s
the case – and no one knows absolutely – then a fixed-
rate loan is a better choice for conservative borrowers.
Q: How do you find good contractors to do
home repairs and improvements?
A: There are different approaches to this question.
My preference is to see what kind of work service peo-
ple do when faced with smaller jobs.If someone does a
good job and prices fairly, I give them more work in
their specialty, say heating and air conditioning.
I use local contractors who are licensed and insured
as required by my jurisdiction, and I try to work with
smaller local businesses – the type where the owner
comes to the property. Once I grow comfortable with
someone,say a plumber, I then feel safe asking if he or
she can recommend an electrician, heating specialist or
whomever if the need arises.What I’ve found is that if
the contractor does good work he or she likely knows
others who also are reliable, skilled and fair.
I make a point to appreciate and respect people that
provide services and treat me fairly,to know them on a
first-name basis and to pay immediately. I try to use the
same people for both my home and rental properties
so I can give more business to people I trust.I also rec-
ommend them to other property owners because I
want them to do well and stay in business.
© CTW Features
Peter G. Miller is the author of “The Common–Sense
Mortgage” and a veteran real estate columnist. Have a ques-
tion? Please write to peter@contentthatworks.com.