10-1-04
BY MIKE McNAMARA
Like most actors and artists here in Chicago, I don't make much money. But I am a home owner.
Friends are always shocked when I tell them that I own. Then after talking a bit, I find they've always wanted to buy a place themselves but didn't think they had enough money or were intimidated by the home buying process.
Which brings us to this column. We all have our "side job" to supplement our acting career; mine is to help people with their mortgages. I'm here to demystify the home buying process and to help actors and artists make the most of that rent money they're spending every month. From one actor to another, we'll take a look at the home buying process, its perks and pitfalls. Hopefully I'll give you all the information you need to become a home owner in Chicago.
Let's start with three basic questions: Why should I own? Can I own? How do I own? This first article will handle the first question.
Is owning that much better than renting? My answer to you is a resounding yes, but I'll do my best to present both sides of the argument.
There are some advantages to renting. Your monthly expenses are set. If your sink leaks, you call the landlord. You don't have to be particularly nice to the place, because it's not yours. If you scratch the floor, you throw a rug on it. When your lease is up, you can leave. In a year, you can pack it up and live somewhere else, if you like.
Those are really the only advantages I can muster, and they tend to be a bit overrated.
While your monthly expenses as a renter are set, you'll find that it's a very similar situation as an owner. Without a doubt, owning a home is a responsibility that will cost you time, money and effort. However, if you buy a quality property, and you are prepared to cover the occasional refrigerator repair or special assessment from your condo association, you will find that your expenses remain relatively stable.
While it's nice not having to worry about taking care of your place, it's generally much more rewarding to have a residence that you love and that you benefit from improving.
As for that final advantage, the truth is that as a home owner, you can move out at any time. You can sell, or you can rent the place out to cover your expenses or possibly profit a bit.
You've heard it a million times before but I'll say it again because it's true: When you rent, you are paying someone else's mortgage. Why not just pay your own? When I bought my condo, I wasn't in great financial shape, I wasn't looking to settle down or start a family or anything like that; I simply couldn't justify throwing all that money away every month.
Real estate is a solid investment, a much more reliable investment than any stocks or bonds or anything else you hear about from your friends or CNBC. Legendary investor Peter Lynch puts it best in his book, "One Up on Wall Street": "Before you invest anything in stocks, you ought to consider buying a house, since a house, after all, is the one good investment that almost everyone manages to make. I'm sure there are exceptions, such as houses built over sinkholes and houses in fancy neighborhoods that take a dive, but in 99 cases out of 100, a house will be a money-maker."
You have greater security as a home owner, in a number of ways. As a renter, if a landlord sells the building or prefers to rent to someone else, you can be forced to move. Also, as an owner, you can control your environment. You are not at the whim of a landlord if you want to strip the lavender paint off the woodwork or replace the olive green toilet.
There are a number of financial benefits to owning a home. Mortgage payments help build your net worth. Unlike rent payments, a portion of the money you pay goes toward building equity (the difference between the market value of a house and the amount still owed on the mortgage). As you pay off the mortgage, you owe less on the home and "own" a larger share of it. Another advantage is that the equity you build over the years can help qualify you for other loans, such as college and car loans. Finally, the tax code is generous to home owners. Not only can you deduct your mortgage interest and real estate taxes, but you are exempt from taxes on the profit from selling your home (up to $250,000 per individual) if you have lived in the property for two of the past five years.
There's always that last perk: If you become a home owner, your mom and dad might stop asking when you are going to give up this acting nonsense and become a grown-up. Worked for me, at least.
The bottom line is that you will have a great place to live, a home that you can take pride in, and an investment that is appreciating in value rather than eating up your money in rent.
So that covers our first question, Should I own? Frankly, it's the easiest one to answer; most of us realize that it's a good thing to own real estate, but we just don't see it as a possibility.
Which is why the next column will tackle the question, Can I own? We'll talk about unappetizing phrases like "credit score," "debt-to-income ratio," and the often-intimidating "down payment." Then it's on to How do I own?, where I will do my best to walk you through the home buying process, from the time you decide to take the plunge to the day the seller hands you the keys to your new abode.
In the meantime, if you have any questions, even if you already are a home owner, feel free to call or e-mail me anytime. Also, please send any comments or suggestions about this article, and let me know if there are topics that you would like to see discussed.
Mike McNamara has been a working actor in Chicago for the past six years, in theatre, commercials, television and film. Mike is also a mortgage consultant and loan originator with West America Mortgage Company. He can be reached anytime at 773/398-0021 or McNamara310@aol.com.