Wednesday, February 15, 2006

Rent vs. Buying: better to rent

“As an example, imagine that homes in your area sell in the $450,000 range and rent for $2,500 a month. This rental rate is insufficient to cover monthly ownership costs even with 20 percent down. Imagine that you put down $50,000 and borrow $400,000 at 6.5 percent over 30 years. The monthly cost for principal and interest is $2,528. There would also be costs for taxes and insurance, plus you would have repairs and vacancies. Lastly, that $50,000 down payment is not earning interest.”

“Is this property a good investment candidate? If you can afford the negative cash flow in the first years of ownership, perhaps. If you can’t afford the negative cash flow, then no, it’s not plausible.”

“Q: How do you decide when it’s a good time to change from a renter to an owner? A: According to the National Association of Realtors about 40 percent of all homebuyers are first-timers, so more than three million people look at this issue each year and decide to buy. In addition, there are no doubt others who consider the issue and prefer to rent.”

And a website takes a look at the equation for various US cities. “California and NYC region have biggest house price ‘bubbles’: new list ranks US Cities with most inflated house prices. A house price ‘bubble’ is said to exist where the cost of buying a home is unduly high compared to the cost of renting the same property.”

“A new reference book..has published a list of cities with the largest disparities between owning and renting. It is based on a database compiled by the US Department of Housing and Urban Development that includes 71 thousand households. The top nine cities in the list are all in California or the New York City commuter area. The list below shows a dollar amount for each city indicating how much more expensive it is to buy a home rather than rent.”

1 San Diego, CA - $1,442 per month

2 Anaheim Santa Ana (Orange County), CA- $1,376 per month

3 San Jose, CA - $1,340 per month

4 San Francisco, CA - $1,308 per month

5 Los Angeles Long Beach, CA - $1,211 per month

6 New York City, NY - $1,118 per month

7 Northern New Jersey Areas - $1,030 per month

8 Newark, NJ - $1,017 per month

9 Nassau Suffolk, NY - $991 per month

10 Boston, MA - $981 per month


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