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Montauk Real Estate Advice
Vacation Homes…
Should You Buy or Rent?
by Nick Deane
This is a tough one. Many years ago I used to make a living by writing about personal finance, and I bet I
wrote 300 articles on this topic. But they were based on taxes and did not take the mortgage point of view. Let’s take a look at that.
Many people come out to Montauk for a weekend. They like it, and then come back. Eventually, they fall in love with it and decide they want a vacation home here. But they can’t decide if they want to buy one or rent one every year.
How do you decide? First, think of personal concerns. When you come to Montauk, do you want absolute freedom in your home? Like the ability to paint a room purple if you decide? Do you have a pet?
On the other hand, how do you feel about yardwork? How about fixing things around the house? I bought a hammer a few years ago but never used it because it came without instructions.
How do you feel about the expense of renting? Renting is more convenient, but many people regret spending all that money years down the line. How do you feel about the expense of home repair? When my wife and I bought our first home, it was a major transition for me to spend money on a new stove. I had never spent that kind of money without having a great time before.
How long do you plan on using the home? Less than five years, you should think about renting. What do you think will happen to the price of real estate over
the next few years?
So, with all this said, what do you do? Buy or rent?
Renting comes with certain advantages. It’s not your house, so you don’t have to worry about the roof or
the yardwork. Real estate prices could drop through the floor, and it won’t hurt you. In fact, it might reduce your rental payments. Renting also offers you flexibility. Don’t feel like Montauk this year? Go to Cape Cod.
On the other hand, the conventional wisdom is to buy. If you can afford it, put down a downpayment and get a mortgage. Mortgage rates are up slightly, but historically they are still great. Real estate prices are up, but how far do you expect them to fall? Do you know anyone who has held on to real estate for 30 years and lost money on it? Buying might cost you a little more out of pocket, but when you include your tax savings, the difference could be dramatic.
Here’s an example of tax savings. Say you buy a home with a 750,000 mortgage with a 30-year fixed mortgage at 7%. Your real estate taxes are $8,500 a year, you paid two points to buy the home, and your closing costs were $35,000. Also, assume you are in the 45% tax bracket. After a year, you will have saved more than $34,000 in taxes, and after 30 years, you will have saved more than $592,000 in taxes.
Also, in 30 years, your home will be worth far more than what you paid for it. And finally, if you buy a home in Montauk, you can rent it out for a lot all summer long.
The best thing to do is, if you feel comfortable buying a house, to talk to your accountant and get your individual plusses and minuses of each.
Whatever you do, have fun!
Nick Deane is a Senior Loan Officer with Buyers’ Choice Mortgage Group and can be reached with your mortgage questions at 917 576 6408. Nick also owns, along with his wife Claire Dowling, Nick’s on the Beach in Montauk. Claire is an Associate Real Estate Broker with Pospisil Real Estate in the Plaza in Montauk, and can be reached with your real estate questions at 668 5200. |
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