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The Role of Hurdle Rates in Rent vs. Buy Decisions

tech <p><span><span>Jumping through hoops, overcoming obstacles, tackling hurdles - this is either Field Day at Brackett School, or the past few years in real estate. Luckily,</span></span> <a href= "http://www.kcmblog.com/2012/04/23/everybody-calm-down-the-market-is-recovering/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+KeepingCurrentMatters+(The+KCM+Blog)"> <span><span>most signs are pointing to a recovery</span></span></a> <span><span>- although it looks like slow and steady will win this race.</span></span></p> <p><span><span><span>As the market regroups and recovers, the rules of the game are also changing with it. Tactics for securing homeownership that might have worked a year ago (i.e., the lowball offer) are shifting.</span></span></span></p> <p><span><span>One of these shifts involves the Rent vs. Buy dynamic. There are a number of reasons why one might rent rather than by, and vice versa, and there can be tangible and intangible benefits to both. For example:</span></span></p> <p><span><span>It can make sense to <b>rent</b> when home values are falling (and will do so for some time). This will prevent a loss on the purchase of a home. Or, renting is an alternative when short-term housing is needed</span>. For example, you're relocating for a job, or you're saving for a down payment. And of course it makes sense <span>to rent if you're unsure of a new location and want to test it out to be sure it suits your lifestyle.</span></span></p> <div><span><span>On the flip side, it can make sense to <b>buy</b> when home values are low but on the upswing. Then the home you purchase will likely increase in value and build equity long-term. <span> </span>Homeownership also offers benefits from tax breaks that you are not eligible for as a renter. And, there's a sense of pride in owning a place that's yours, where you get to call the shots.</span></span></div> <p><span><span>The '<b>hurdle rate</b>' is one measure which people rely on to determine whether to rent or buy. A</span></span> <a href= "http://speakingofrealestate.blogs.realtor.org/2012/02/13/study-calls-todays-market-good-time-to-buy/"> <span><span>hurdle rate is the point at which it's equally smart to rent or buy if your only criterion is to build wealth</span></span></a><span><span>.</span></span></p> <p><span><span>Experts have declared that today's hurdle rate is lower than average past property appreciation rates, making <b>Buy vs. Rent the preferred option for prospective homeowners</b>. Why? Because things are looking up:</span></span></p> <div> <span><span>·<span>        </span></span></span> <span><span>The real estate market is just beginning its recovery</span></span></div> <div> <span><span>·<span>        </span></span></span> <span><span>Interest rates are at historic lows</span></span></div> <div> <span><span>·<span>        </span></span></span> <span><span>Home values are only just beginning their ascent</span></span></div> <div><span><span>Therefore, future property appreciation should allow you to create more wealth through owning rather than renting.</span></span></div> <div><span><span>Housing affordability is at levels not seen since prior to the early 1990s,</span> and <span>rental price expectations for the next year are expected to continue to rise. The question of whether to rent or buy is clear - and with that hurdle behind you, you can focus on the next step of finding a new home.</span></span></div>

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