Rent vs Own Examples

[kfhoz]

I am not actually finding rents to be as amenable as others are in the area and house range that I am interested in. But, my criteria may be harsher.

I want to rent about a $400,000 house in Renton for 4.5% of the sales price or $1500 per month. According to my reading of posts and historical data etc, that is a reasonable ratio to expect. But I am finding the listed rentals to be 6% of the house value.

I want the $400,000 price to be based on historical value criteria, and I can use a variety of tools to estimate that. Tim's calculator is one such tool http://seattlebubble.com/blog/?s=calculator . An example estimate from that is that a house that sold for $500 in 2007 should be worth about $400,000 now.

You can find out what most rental properties actually sold for on Redfin.com, no need to try an do your own comps. Get the address from the craigslist ad, put it in redfin and get latest sales price, or even a few historical price samples. Drop the year and price in Tim's calculator. Many houses are now listed, or have recently sold, at and below Tim's calculator price.

I am looking in the Renton area, and below are some examples. I have done many more of these calculations than those 3 examples and they seem reasonable consistent. So the rent vs buy equation is quite different than what others have described! When rent is 6% of buy price, the rent vs buy comparison changes.

I think that one of the reasons these rent as % of price numbers are different than others have found in comparing craigslist rents to house prices is that buying price seems more affected by location than rent price. For example, $1500 rent in Redmond gets you a house not all that different than $1500 rent in Renton. But $400k to buy in Renton gets you lots more house than $400k in Redmond. Another reason my numbers are different is that some others are using the actual bubble price that a house sold at, rather than estimating like I did. I am not going to buy a bubble priced house, so it makes no sense to do a rent vs buy comparison with that price.

I would love to hear of anyone else doing these types of comparisons in their area. Use the actual house that is for rent, and use estimated real-value price, or on prices from a very recent sale.

RENT PRICE LINK
1600 $333k
1495 $280k
1595 $290k

[deejayoh]

I see a number of issues with your logic that just don't make sense to me
1) Why are you basing your estimate of what rents should be off of a % of home price? that seems backwards. There has not been a "rent bubble" so you can generally use a rent multiple to tell you if a home is fairly priced for sale, but you can't do the opposite. Using your examples, if homes are renting at 6% of sales price (a 17x multiple) it is an indicator they are probably pretty fairly priced for sale versus a 4.5% rate which is a 22x multiple.
2) On what are you basing your assumption that home prices have dropped by 20% in Renton since 2007 (from $500 to 400k)? Home prices are off 10% in the last year by most metrics. Tim's calculator is a estimate of what homes should sell for if the there had never been a bubble. It isn't an estimate of what the true selling price would be.

Rental comps are rental comps. I'd look at what other places are going for and what the increases have been and make a decision based on that.

[mukoh]

DJ,
Renton, depending on who you ask has seen homes that were brand new in 07 for $480s come down to $370s now.

[deejayoh]

[kfhoz]

DJO, thanks for the logic checks, but I think that I have valid counter-points as below.

I have checked Renton prices, and many examples of houses are down more than 20% from peak. Many listed prices, and actual October and November sales show lots of houses that have fallen as much or MORE than Tim's calculator output. You would get a different result if you were comparing Tim's calculator to actual prices in Ballard.

Thanks mukoh for confirmation you have seen some of the same price patterns for this range in Renton.

Some of the Renton properties for rent on craigslist are ones that have sold in recent months, and in general are being offered for rent at about 6% of sales price (or at least the ones in price range I am looking, lower or higher parts of the market may be different). I am not sure what that means; is it that some investor-landlords are still buying or have started buying again?

DJO, regarding your last paragraph, perhaps I didn't make clear in my original post is that I am not interested in rental comps, not comparing rent vs rent. I am comparing rent vs own. Your point that if the house can rent for 6% of sales price then it might be a pretty fairly priced buy is what I noticed and part of what I am pondering.

I started looking to rent after doing rent vs buy comparisons using rent as 4.5% of buy price in some of the rent vs buy calculators available online. If I were to buy right now, I would be buying about a $400,000 house, so that is what I am looking to rent as an alternative to owning. I was surprised to find that rents that I see in my target market are 6% of price, contrary to what others have done examples on. Maybe I am doing something wrong?

[Alan]

Advertised rents are going to be on the high side of the market for the simple fact that low prices disappear and high prices are readvertised.

[kgcore]

We have started looking at rentals in the 2K to 2.5K range and really were blown away with what we are seeing you can get. Literally, houses that were on sale for over a million dollars a few months ago.

Check out this blog below:


She sounds like she knows what she is talking about.

It is going to be very interesting in what happens with rents in the next 6 months.

[Dave0]

Here's a rent vs own example, exact same property for rent and sale:
http://www.redfin.com/WA/Seattle/7003-6 ... ome/307373

http://seattle.craigslist.org/see/apa/980237560.html

Rent: $1,900/month
Buy: $385,000

Hmmm....
Interest payment on $385,000 @ 5%: $1,604
Monthly property taxes: $276
Insurance: ??
Maintenance:??
Total cost of owning: $1,880/month + insurance + maintenance + risk of foreclosure when your job disappears in the coming depression

I'll take the $1,900/month rent thank you very much.

Knock $100k off the price and I might consider it.

[Alan]

I would be surprised to see that rent for $1900.

But then I don't know the Greenlake market. Around Microsoft you can find stuff on craigslist for aroung $1/sqft to rent.

That place is only 1250 square feet.

I bet they are pricing it to cover their mortgage and hoping to snag a fish.

[Alan]

This 1000 sqft 2/2 Greenlake condo is asking $1100/month. For only $800 extra you can get 150 more sqft.

http://seattle.craigslist.org/see/apa/980423801.html