Renting vs. Buying

renting in this market is far far cheaper than buying. First: no down payment. Don't forget this down payment isn't just going to sit in your checking account if you don't buy a house, hopefully you have it invested and can earn some income of 10% or so/year. Thus, you need to add that 10%/yr to the cost of owning your house. Second: rents currently cover about 1/2 of what the mortgage payments on similar apartments are. Even if prices don't come down (which they will) almost everyone in this city is better off renting. It makes zero economic sense to buy right now.

also, don't forget that prices are falling, and therefore, you need to add the cost of losing the complete downpayment to the cost of owning.

How do you figure 10% return on savings in your rent vs. buy calculation? Before giving advice pls be more realistic. Many savings banks offer 5% apr but there's no guarantee that'll continue. Unless you're an investment wiz or know something we don't there's no way to guarantee 10% return.

Also, how do you figure that rents will cover 1/2 of what a mortgage payment will be? Have you not rented recently? It aint' cheap either.

To be realistic, look at the cost of renting the space you want vs buying it, and figure out how long you plan to live there. Also consider the tax benefits. There is no clear-cut yes or no answer without doing some analysis.

If you're planning to say somewhere for at least a few years then buying might be worth it. But if you're planning to move in a couple of years or are not sure where you will be, then renting might be worth it.

It all depends on your situation. I'm a buyer and I'm finding that right now there are good deals to be had and room for negotiation. good luck

I'm a landlord and have collected 26 properties in the last 20 years,
selling none. I hope you continue to rent.... :)

Landlord, as long as you keep our rents way below mortgage payments (which you have) we will continue to rent.

to the above comment of earning 10% per year --- how about the good all VFINX (Vanguard S and P 500 index) the most passive investment of them all ==> it's brought me 33% total return since November 2003 ... so it's quite doable. Of course, I agree wholeheartedly, it's naive to ASSUME one will make 10% per annum, but it doesn't take the savviest investor to bring in an average of 7-8% year if you're buy and hold in low cost diversified index funds....

"...it doesn’t take the savviest investor to bring in an average of 7-8% year if you’re buy and hold in low cost diversified index funds…."

That's if you time the market right. Same thing can be said about buying real estate. you only realize your return when you cash out. the point is consider what your situation is and where you want to put your $$.

Yes, now is the time to buy because we are in a sluggish market and there is more room for negotiabiltiy. But it all depends on your situation,if you are staying in the same location for more than 3 years buy.And buy NOW! While you can bargain.

LOL that was funny broker above me. BUY NOW!!! hahahahahahahahaha - good one!!

Boy, everybody hates RE brokers.

I may be oversimplifying this, but wouldn't sale prices and rental prices (on an after tax basis) always by highly correlated? Sure there would be periods where they may divurge somewhate, but wouldn't market forces always drive towards equilibrium?

to the poster above - exactly, that is why real estate prices must continue to decline.

regarding the comment about corrolation btw sales & rental prices (after tax) - it depends. Both sale & rental markets are different and are driven by diff forces.

In the SF bay area both rental and sales markets went nuts during the dotcom boom ...but when the bubble burst the rental market sank as people got laid off and left town in droves. meanwhile the housing market heated up for other reasons (low int rates, people looking for a safer place to put their $$).

Point is, consider the demographics of renters (ie young, out of school or new to town? recent econ boom) vs buyers (retirees? families? more stable economy? tax profile?)

1. My 1000 square foot 2BR/2BA apartment in a new full service building currently rents for $4800/month (pretax) and I paid no fees to move in.

2. A similar quality (though with nicer kitchen and baths) new construction 1000 square foot 2BR/2BA condo in close proximity, is currently for sale for $1,200,000. Assuming 20% down and an interest rate of 6%, my monthly costs to own would be $6000 (interest only), plus $150 insurance, plus $1000 tax, plus $500 CC, for a pre tax total of $7650. Assuming a 35% tax bracket this would be $3900 in interest, $150 insurance, $650 tax, and $500 CC, for a total of $5200.

I have not included principal payments in scenario 2 as they are really not costs but rather repayment of debt. I have not included the downpayment in either calculation as both cases would require you to assume what return you would get and if you think you will loose 50% of your downpayment by buying (a 10% loss in property value) any return you get on investing elsewhere will look good.

So assuming that your $240K down payment will earn similar after tax returns in either case (obviously a critical assumption), it doesn't look to me like the rent vs. buy argument is won simply by looking at their relative costs, but only by the assumptions you make with regard to the relative returns you believe your down payment will deliver in either RE or non-RE investments.