Buying a Better Deal Than Renting in Most Cities

From an interesting article from CNNMoney today…

According to real estate web site Trulia, buying was cheaper than renting in 74% of the country’s 50 largest cities in July. In just 12% of the cities, including New York, Seattle and San Francisco, renting was cheaper. In the remaining 14% of cities, renting was less expensive but close to the cost of buying. In addition to a continuing decline in home prices, rock-bottom interest rates have added a lot of weight to the buy side of the scale. The overnight average rate for a 30-year fixed was just 4.19% on Monday, according to Bankrate.com. A 15-year fixed averaged just 3.43%. Add in the tax perks of home ownership and for those who can afford it (and who can actually qualify for a loan), it certainly is a buyer’s market.

Wish they’d break out Brooklyn from the rest of the city in these studies!

18 Comment

  • The problem is that probably 80% of the people out there can’t figure out how to do the calculations to determine this.

    It’s not so black and white and varies person by person depending upon income level, family status and sophistication as to investment options. It also varies greatly if you buy a brownstone with a rental unit and rather low RE taxes as compared to a condo or coop.

  • The problem is that probably 80% of the people out there can’t figure out how to do the calculations to determine this.

    It’s not so black and white and varies person by person depending upon income level, family status and sophistication as to investment options. It also varies greatly if you buy a brownstone with a rental unit and rather low RE taxes as compared to a condo or coop.

  • So, how do we do the calculations correctly?

  • It goes hand in hand with the foreclosure mess where countless people were hoodwinked and scammed into refinancing thinking they would get all this money and yet they didn’t even have the intelligence to think maybe they needed advice before attempting this.

  • “rock-bottom interest rates have added a lot of weight to the buy side of the scale”

    Rock-bottom rates but sky-high prices. The banks will not give it to you any other way. Rates are sure to spike back to historic mean as the de facto defaults, ahem downgrades, keep coming in (hello S&P!). Is that the environment you want to sell into? I’d rather buy at a high rate but low price, giving me the opportunity to refinance into a lower rate environment later (or sell at a correspondingly higher price later). A growing down payment and the overshoot that market panics bring, will likely result in a lower monthly payment with the latter. More money down on a cheaper house.

    Well, ya’ll know by now that we’re picking up where we left off circa 2008/09. Nothing has changed except positive compounding debt.

    ***Bid half off peak comps***

  • “rock-bottom interest rates have added a lot of weight to the buy side of the scale”

    Rock-bottom rates but sky-high prices. The banks will not give it to you any other way. Rates are sure to spike back to historic mean as the de facto defaults, ahem downgrades, keep coming in (hello S&P!). Is that the environment you want to sell into? I’d rather buy at a high rate but low price, giving me the opportunity to refinance into a lower rate environment later (or sell at a correspondingly higher price later). A growing down payment and the overshoot that market panics bring, will likely result in a lower monthly payment with the latter. More money down on a cheaper house.

    Well, ya’ll know by now that we’re picking up where we left off circa 2008/09. Nothing has changed except positive compounding debt.

    ***Bid half off peak comps***

  • ” I’d rather buy at a high rate but low price, giving me the opportunity to refinance into a lower rate environment later (or sell at a correspondingly higher price later)”

    Ah, BHO, the omniscient one!!!! You’ve had this opportunity countless times over the past 30 years. Where were you to take advantage of it?????

  • Well, here are some real numbers:

    A 4-story brownstone in my nabe is $2MM, plus or minus, depending on condition. Financing with 20% down leaves $1.6MM mortgage, costing $9200/month (not factoring in lost opp costs of down payment, but also not counting tax reduction (which phases out, though, under AMT)). This leaves ALL transaction costs out, which are at least a couple-few points on the front end and probably 7-7.5 on the back end. This also leaves out all maintenance and improvements. Rent vs. buy calculators usually factor 1% per year for maintenance and improvements – so $20K/yr, or $1500/mo, average.

    I can rent a lower duplex for $3,300/month, with $0-$5K transaction costs at the front end, and none at all on the back-end.
    Pretty much a no-brainer, no?

    And I think the traditional math to compare the figures is value = annual rent ($39,600) x 10. For my apartment, that yields $396,000. Or maybe it’s x15 (yielding $600K)? Even if it’s x20, given current interest rates (yielding $800K), it’s so much cheaper to rent than buy, at least here in Brownstone Brooklyn… which I love, but cannot justify paying these prices for.

  • noob…you cannot compare buying a 4 story brownstone to renting a lower duplex.

    They are not comparable.

    Also, you’re assuming a 6.9% mortgage rate in that number. RIDICULOUS

    This is a perfect example of people unable to actually do the calculations correctly.

    EPIC FAIL

    • love the condescension, thank you!
      It’s actually a 5% mortgage, and includes taxes. I do have to pay RE taxes, right? And insurance? Please educate me, oh wise one.

      I assumed taking just half of the mortgage as comparable to half the cost of the building. Perhaps this is incorrect; could I rent out the top half for $5,000? Seems unlikely – but even if I could, that only covers the monthly nut, and does not address transaction costs.

      I actually agree on the maintenance and repair costs, they seem high, but the percentage is used regularly, and people around here have seem to have some screaming high repair costs.

      Also, you can’t actually a buy a fully-reno’d townhouse in my nabe for $2MM – it would be more like $2.5, or more, if fully done, based on houses I’ve looked at. But what do I know? I am just an epic fail, right.

    • love the condescension, thank you!
      It’s actually a 5% mortgage, and includes taxes. I do have to pay RE taxes, right? And insurance? Please educate me, oh wise one.

      I assumed taking just half of the mortgage as comparable to half the cost of the building. Perhaps this is incorrect; could I rent out the top half for $5,000? Seems unlikely – but even if I could, that only covers the monthly nut, and does not address transaction costs.

      I actually agree on the maintenance and repair costs, they seem high, but the percentage is used regularly, and people around here have seem to have some screaming high repair costs.

      Also, you can’t actually a buy a fully-reno’d townhouse in my nabe for $2MM – it would be more like $2.5, or more, if fully done, based on houses I’ve looked at. But what do I know? I am just an epic fail, right.

  • Additionally, there’s no way in the world maintenance is going to cost you $20k a year if you’re buying a fully renovated house for $2MM.

    Think about it for god’s sake.

    • The comparison is fair — renting a lower duplex or else buying a 4 family and renting out the top two floors and living below. Not how I’d like to live, but a choice a lot of people in Brooklyn seem to make.

      There are very few 4 families that are fully renovated (period), especially for under $2 million (outside of Bed Stuy). Turning part of a 4 family into a livable apartment for an owner is going to cost probably at least another $100K, and it wouldn’t surpsrise me if the cost of maintenance/renovations for the rest of the building is rather high.

      I agree that 6.9% is probably too high, but mortgage rates for over $1.5 million are not widely published. At under 5%, buying is probably a good idea still, but you have to wonder what will happen to the actual value of the property once inflation kicks rates up back to 8%.

  • boerumresident, then noob needs to account for the income, which she did not.

    Bt a 4 storey vs a duplex rental ARE NOT fair without that.

    No one mentioned further renovation costs. Without specifying what work is necessary, $20k maintennce per year is ridiculous.

    We can argue about this forever but unless you specifically spell out all of these numbers it’s useless to discuss it any further.

  • boerumresident, then noob needs to account for the income, which she did not.

    Bt a 4 storey vs a duplex rental ARE NOT fair without that.

    No one mentioned further renovation costs. Without specifying what work is necessary, $20k maintennce per year is ridiculous.

    We can argue about this forever but unless you specifically spell out all of these numbers it’s useless to discuss it any further.

  • We’re paying $2,000 a month to live in an 1,800-square-foot duplex with a garden. (We own the whole building and rent out the top floor.) We were previously renting a 900-square-foot apt for $1,600.

    If we were charging market rent for our apt we’d be paying $1,400 a month. Our maintenance costs are high, however, as has been previously documented in the Forum. We’re hoping the skunks move soon.