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Rent Vs. Purchase Comparisons

I’m working on a post that I’d like to make this week where some real-world examples of renting versus purchasing would be really handy. There’s a thread on the forums on the subject, but I’d like to pose the question here as well.

Basically what I’m looking for are some concrete examples (with links and addresses) of homes available for rent vs. comparable homes (i.e. – similar bed / bath, square footage, lot size, neighborhood, etc.) available for sale. Ideally I’d like to throw some condos vs. apartments into the mix as well.

Here’s an example of my own to kick things off. (I did this research a few weeks ago, and since then both have gone off the market, so I don’t have links anymore.)

For Rent:
1,840 square foot house
3 bedroom, 2.5 bath
2-car garage
8,282 square foot lot
Near 74th Pl NE & NE 148th Ln, 98028
Price: $1,495 / month

For Purchase:
1,850 square foot house
3 bedroom, 2.5 bath
2-car garage
9,660 square foot lot
Near 87th Ave NE & NE 132nd Pl, 98034
Price: $424,950
PITI*: $2,750 / month
* (Assumes 20% down, 30-year fixed @ 6.625%, Insurance @ 0.46%, property taxes at 1.15%)

So what are your best rent vs. purchase examples in the Seattle area?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

42 comments:

  1. 1
    Ken says:

    My place i am renting for 1400 a month.

    Cost 339,000.

  2. 2
    Joe says:

    Mine-rent $1,100

    Comparable sales $300,000 to $350,000

  3. 3
    Andrew says:

    For Rent:
    One Bedroom/One Bath Condo
    2415 2nd Ave, Seattle
    $1200/month
    http://seattle.craigslist.org/see/apa/355432778.html

    For Purchase:

    One Bedroom/One Bath Condo
    2415 2nd Ave, Seattle
    $285,000
    MLS: 27088257

    One Bedroom/One Bath Condo
    2415 2nd Ave, Seattle
    $299,995
    MLS: 27094997

  4. 4
    SeattleRenter says:

    House on the hill in the affluent Queen Anne Neighborhood.
    2 Bd, 1 BA with 1bd, 1 ba MIL
    $1900/ no utils incl.
    Comparable home sales on same street: $700 – 750,000 = $4,000+/month with 20% down

  5. 5
    george says:

    The Rental:

    Phinney and 67th rental for $1950/month
    3 bedrooms with 1 3/4 baths
    Walking distance to Green lake and Woodland Park Zoo.

    For Sale:
    711 N 66th St for $599,950
    Seattle, WA 98103
    Beds: 3 On Redfin: 31 days
    Baths: 1.75 Year Built: 1924
    sqft: 2,110 Lot Size: 3,720
    $/Sqft: $284 MLS#: 27092950
    Status: Active on market
    Last Sale: $364,950 (08/06/2001)

    I’m sure there are even more expensive comps in that neighborhood. According to the New York Times “rent or buy” calculator you come out ahead renting even after 30 years. So why would anyone in their right mind rush in to buy in 2007 when the market seems poised to level off?

    I’d love an agent to explain that one to me…and keep a straight face.

  6. 6
    Las Vegas Tim says:

    Great work – Thanks! IMO, It would be a more accurate comparison if you calculated the PITI with zero downpayment, since that is more similar to the up-front cost of renting.

  7. 7
    femto says:

    Here’s a pair from my own building (The Elektra)

    For sale (currently STI) at $249,950
    http://www.redfin.com/stingray/do/printable-listing?listing-id=821136

    For rent, furnished, at $1600/month
    http://seattle.craigslist.org/see/apa/356396958.html

    HOA at $275/month. Rental furniture worth perhaps $100-$200/month, e.g.
    http://www.contifurniture.com/rental/packages.htm

  8. 8
    EconE says:

    Dont really care if people know where I live.

    Anyhow…the faithful readers of this blog (and urbnlivn.com) know that I have been following the condo bubble in Seattle for quite some time rather than SFH and concentrating exclusively on Seattle and Kirkland. I’ve been following it for about 3 years now…like a hawk. (I also casually check NYC, Austin, St. Louis and Cleveland…also condos)

    Matt’s Urbnlivn blog is written in such an enthusiastic way that I decided to try a 2 year stint in an Urban Hi-Rise Environment. It’s really not my style but it is unique and interesting and does have benefits for people that work downtown. Families however I would not recommend it for as there is very little green area downtown and it certainly will never be a Manhattan no matter how hard it tries (hello…Central Park)

    BTW…our Los Angeles downtown condo market attempt isn’t going so well. Just check out http://www.1100wilshire.com for an example or check craigslist for downtown lofts…the P/E ratio is worse than many other areas in L.A.(no…sorry I don’t check rental prices for Watts, Compton or Inglewood sorry).

    So…anyhow…

    I rent at that 2200 Westlake complex in the Aria Building. That’s the “premium” (chuckle) building of the three buildings in the complex. The one above the hotel. It was built by Vulcan…Paul Allen’s construction company.

    Speaking of Mr. Allen…does anyone have a tally of how much he’s given to philanthropic causes…like homelessness, disease etc.(Sorry…I don’t want to hear about EMP museums and the like). I’d like to compare the $ amount to how much he has spent on Yachts such as Octopus and Tatoosh and Meduse just for fun.

    I’m in one of the 1BR units.

    One sold for 604k on 4/20/2007 per condocompare.com and one below me is currently listed at 559k (MLS#27062633)

    It started at 599k was dropped to 579k and then reduced to where it is now all within about a 45 day time frame for the reductions.

    I negotiated the price down by offering 6 months rent (10,000) at a time for 2 a year lease working out to roughly 1667/mo.

    I’m not sure what my landlord payed for it but when I used to do my domania.com searches (which will only give you the ORIGINAL STARTING LISTING PRICE…trust me…I followed quite a few different condos I could see what the prices that the owners paid for the new construction condos at the complex that I am currently living in. Not all of them but about 38 and it gave unit numbers also. I actually believe these prices are correct as people who line up for condos like they are frigging concert tickets are gonna pay asking price. Anyhow…it’s hard to say but I’m guessing that he paid somewhere between 450-475k…just an estimate but I’ll bet I’m close.

    But for fun! Let’s do the math with mine valued at say…575k with the recent comps.

    So…as was suggested above…I think that we should run the same 30 year fixed at 0 down and even give them the benefit of the 20% down interest rate. For the condo I won’t include insurance as HOD cover that so I will use the actual HOD instead. I did have to use 6.63% interest though with the calculator I could find online.

    $3863.69 mortgage + $416.00 HOD + $551.04 = $4830.73 total.

    Yes…I know that I give up a WHOLE bunch of earnings power by paying 6 months at a time (lol)…but…I’m paying less than 35% of owning.

    AND…I now have a front row view of the Cosmopolitan (selling slooooowly) and all of the STILL EMPTY units in my complex that have neither rented nor sold…some no longer listed on the MLS. Sources that I won’t divulge (but trust) recently told me that there are 5 additional units for sale in my particular building that are not listed on the MLS. I cannot verify this with my research however. (pocket listings?)

    Oh…btw…I called on other “high end” units and they were very willing to negotiate! Even just by emailing one person and basically just saying “LOL…you are never going to get that price”…an then reeling off the list of all the other condos that she would be competing with soon, the CL add dropped 8.7% from the original asking price overnight. I followed the rental and at the end, the asking price was 26.7% of the original asking price. It was on CL for at least 2 months. What the LL finally accepted for it I don’t know.

    Many have sat for months now and all one has to do is remind them that if it sits empty for another month and doesn’t rent…well…that pretty much equals your offer…make sure that you also add…”what if it sits empty 2 months?…I’ve been watching how long these places have been on the market already” you can also add things like “wouldn’t you think that most people who can pay $1500 or more for a 1BR probably already OWN a home?” (that’s a great one BTW ;o))

    So…that’s my story FWIW.

  9. 9
    EconE says:

    oh…and I have a gas stove and a gas fireplace and gas is included in my rent with Water Sewer and Garbage.

  10. 10
    EconE says:

    Awwwww man…I almost forgot…I have to pay renters insurance.

    I guess I should have bought.

  11. 11
    synthetik says:

    let’s see those photos EconE! Tear them a new one!

  12. 12
    f75cbb4 says:

    First time poster here. Purchased this starter house in Lynnwood in 1997 for $126,500. Moved to Kingston in 2001, and decided to turn the old house into a rental. Still have the original tenants; since they have been good renters, PLUS the fact that rents haven’t really increased much in this neighborhood, the rent has remained steady.

    Here are the stats on the house – i.e. rent vs. buy. You may decide whether or not renting is financially more prudent at this point in time…

    For Rent:
    980 Square Foot House
    3 Bedroom, 1 Bath
    1-car Garage
    10,500 Square Foot Lot
    Built in 1960
    On cul-de-sac off 208th St. in Lynnwood, 98036
    Price: $1,080 / month

    Today’s Selling Price: $300,000
    PITI*: $2028 / month
    (*Assumes 20% down, 30-year fixed @ 6.625%, Insurance @0.46%, property taxes @ 1.15%)

    -Mammoth

  13. 13
    stephen says:

    The problem with what you guys do with these comparisons is going apples to apples. It does not work that way in the real world. My buying decision was not whether I wanted to pay $4000 for a house I could rent for $1900. It was did I want to rent a house close to my office for $1800-$1900 a month or drive out and pay a $2500 mortgage. The finacial comparison started there plus the extra gas and car maint…

  14. 14
    johnyboy says:

    5 Years ago I made the decision to purchase even though it was more expensive to rent. At the time, I purchased using a 7% Fannie Mae First time homebuyer and my payment was $1750 compared to rent of around $1200 at the time.

    This was a tough adjustment to be sure. 2 Years later I refinanced at 5.65% and my payment dropped to $1550 (plus a 2K refund from FNMA).

    Then, Last winter I paid for an appraisal and got the PMI dropped because the Equity had grown to almost 50% (195k/365k), so now my monthly payment has dropped 80$ and is around $1475…

    The only thing that will make the payment go up will be an increase in taxes.

    I have also been able to lower my power bills by installing new windows,doors and adding a wood stove.

  15. 15
  16. 16
    Roy says:

    For the same house: sale price (October 2005): $276,500

    Currently renting for $1,100/month

  17. 17
    softwarengineer says:

    HERE’S ANOTHER GOOD REASON TO RENT AND WAIT; OF COURSE NOBODY IS SAFE IF THIS HAPPENS SOON

    This came from Australia’s MSM today, America won’t print it?:

    http://www.smh.com.au/news/business/great-depression-fall-looms/2007/06/25/1182623823367.html

  18. 18
    hamsterdeposit says:

    Where I’m renting now, I’m paying $1950/mo for a townhouse that Zillows for $500ish. Probably should have negotiated the rent, but we’re still saving over buying and investing the difference.

  19. 19
    Alan says:

    Mammoth, Why are you renting your place out instead of sellig it. I’m going to pretend you have the place paid off. Your property taxes are around $250/month (based on your stated valuation) so you are only making $830/month. You have the headache of collecting the rent and doing maintenance. If you sold for $300k, you could be earning a very safe and conservative 5% a year. That comes out to $1250 a month for doing absolutely nothing. Put it in the stock market and you are likely to do even better.

    Maybe you are holding on for appreciation? Why would it appreicate as a business asset when those earning numbers are so out of whack? Maybe your leverage is letting you earn a higher rate of return? Leverage can swing both ways. Sell now before you lose the equity you’ve already made.

  20. 20
    Joel says:

    “wouldn’t you think that most people who can pay $1500 or more for a 1BR probably already OWN a home?”

    That’s absolutely brilliant! I’m sure that’s how those people think.

  21. 21
    Joel says:

    I’ve done a few of these comparisons myself, but instead of trying to find two similar houses, I look for a house for rent that was recently purchased. Then I can do a real comparison between asking rent and actual purchase price. I figure it’s probably more accurate than zillowing a house that is for rent or finding two houses that seem to be similar.

  22. 22
    Ken says:

    I was first poster.

    Heres what i am renting for 1400 plus utilities.

    http://www.redfin.com/stingray/do/printable-listing?listing-id=667345

  23. 23
    Angus says:

    Try the Eastside — where I rent.

    Issaquah Highlands Home:
    http://seattle.craigslist.org/est/apa/360672803.html

  24. 24
    Angus says:

    (whoops — dang enter key)
    Above, zestimate — $608k
    http://tinyurl.com/2hx6b6

    PITI: $3500 (assuming $120k down)

    Ouch.

  25. 25
    Grape Ape says:

    I don’t have access to Zillow at work, so the numbers are a little round:

    An updated rambler (3 bed, s bath, ~2000 ft^2) near me (it is on NE 17th between 108th & Bellevue Way in Bellevue) was recently (Feb?) sold for ~975,000 and a for rent sign showed up next week. There were no details on the sign (what’s up with that?) so my wife called and was told that they were asking $2050/mo.

    I think that the rent is about right for the area, but using you assumptions the carrying cost (less maintenance) is $5614.38. Ouch.

  26. 26
    bearishBull says:

    Sorry for a sort of OT post but I rent in Vancouver BC and think our RE markets are similar at this time, my rental is a 3 bedroom, 2 bath arts & crafts in an affluent neighbourhood (Kerrisdale) Rent = $2200
    landlord purchased for $1.3 million one year ago. The rent is typical for the house size/location.

  27. 27
    Mammoth says:

    Alan said, on June 26th, 2007 at 9:17 am:
    “Mammoth, Why are you renting your place out instead of selling it.”
    ——————————–
    Alan, thank you for your response. You asked a very good question. I still owe $75K @ 5.5% with 10 years left to pay, and the rent covers all but $60/mo. of that.

    The fact is that after spending the past year learning about what is happening to housing, I understand that this enormous run-up in housing prices is now finished. So the question is: Since there will be little price appreciation for the next couple of years, even though the tenants are paying down the principal, is it better to sell the house and put the money to use elsewhere?

    The original idea was to keep this house as a rental, and it would generate a steady income after it is paid off. However, dealing with a rental house in one’s retirement may not be an enjoyable task. There are other tradeoffs as well, so for the time being I am still sitting on the fence trying to weigh all the pros & cons, and meanwhile the clock is ticking and the time to sell the house is NOW.

    Any arguments you or anybody else reading this can provide – whether for or against selling the house – would be appreciated.

    Thanks,
    Mammoth

  28. 28
    Greg Kirkos says:

    Interesting comparison. You have to include the tax savings to be fair, though, which for some of us is 33% or greater. That makes $2750 actually $1815, assuming it’s all interest.

    Also, rents go up. Fixed mortgage is just that. Inflation works for you.

    Also, your landLORD can kick you out anytime, basically on a whim, at least in WA state. Renters have few rights here.

  29. 29
    Skillet biscuit says:

    Find a house for rent on nwsource.com. Get the address. Use zillow.com to get approximate value.

  30. 30
    eric says:

    This is in reference to the original posters stats.
    Rent: 1495 per month. Let’s say it is inceased by 5% per year over the next 5 yrs. You would pay $99,132 in rent or an avg of $1652 per month.
    Home: $424,950. Lets say it appreciates at 2% per year over the next 5yrs. That value would be 469,179
    Loan size: $339,960. Amortized it would be down to $318,750 at month 60.
    Net worth: 469,179-318,750=$150,429

    Tax deductions:
    Interest: 22,522.35
    Taxes: 4887
    Let’s say you are in the 25% tax bracket. Monthly savings of $571
    Mortgage Payment $2750 – 571 = $2,179
    Avg Rent 1652
    Payment difference $527

    I am assuming no other deductions and no salary increase that you push you to a higher tax bracket.

    Question: What kind of rate of return do you need on that $527 per month to meet the net worth you accumulated over that 5 yrs.

  31. 31
    madrona says:

    So wait… now you are using Zillow? But you all mock Zillow for offering inflated home values on other posts. I’m confused.

  32. 32
    eric says:

    I am assuming no other deductions and no salary increase that you push you to a higher tax bracket.

    Question: What kind of rate of return do you need on that $527 per month to meet the net worth you accumulated over that 5 yrs.

  33. 33
    The Tim says:

    Eric,

    First off, you neglect the fact that the renter still gets to take (at a minimum) the standard deduction. Actually there are a lot of things not taken into account in your scenario, most of which are covered in this post by Eleua (with accompanying spreadsheet by me).

    However, I’ll work with your $527 / month figure.

    Given that the renter is not sinking $85,000 into a down payment, you’re looking at $85,000 + ($527 / month for 60 months) = $116,620 before you even take interest into account.

    Using a handy calculator such as this one, I determined that a paltry interest rate of just 5.875% would be sufficient to match the net worth of the homeowner in your example.

    However, if the homeowner wants to cash out, they pay 6% to real estate agent, plus 1.78% in excise tax (in King County), leaving them with just $138,725. The renter/investor in the 25% tax bracket comes out with $141,375, post tax.

  34. 34
    george says:

    Greg: The landlord can kick you out at any time? How? I think with a lease that’s not so easy. Am I wrong?

  35. 35
    EconE says:

    Yeah Greg that’s not what the people at Carbon56 said when I went over there and told them I had a 2 year lease at 2200. The salesman told me that the law favors renters here and that he knows ways to get out of my lease (great marketing tactic dontcha think)

    Anyhow…I have a 2 year lease. It’s not hard to tell that they absolutely HATE having a “bubble person” living there.

    I’m not worried about my rents being raised as I am only there for the duration of my lease.

    If there is an attempt to try to kick me out on some B.S. issue I’ll just say that I have all the FUCKING (sorry Tim) time in the world to spend in court.

  36. 36
    The Tim says:

    Oh also Eric, the best calculator I’ve found for comparing the true costs of renting vs. purchasing a home is this one from the New York Times. Put the vitals of this scenario into there and you’ll see that at 2% appreciation and 5% rent hikes, the renter comes out way on top just about any way you slice it over the short term, and even over the long term it takes nearly 30 years before the buyer is better off financially.

  37. 37
    Joel says:

    Let’s say it is inceased by 5% per year over the next 5 yrs.

    Isn’t that kinda high? I know homedebtors love to trying to scare renters into buying by talking about rent increases, but rent can only really track with inflation lest everybody become priced out of rentals forever.

  38. 38
    Patrick says:

    EconE,
    The way you describe it, the high-end market in Seattle is saturated. Do you see any indications that developers will start building condo towers that the middle-class could afford to buy into?

  39. 39
    Matt_in_TX says:

    Dropped in from TX because I was missing Seattle. Until I read about the $600,000 1BR condo that RENTS for $100 less than the 15 year PITI for my 4 BR 2465 sqft house in Texas. (360 times monthly rent??)

    I haven’t run the numbers but I could probably live in my Texas house and COMMUTE the 2000 miles cheaper than I could buy that condo.

  40. 40
    botec says:

    I’m trying to decide if I should continue to rent or buy. I’ve been renting in the centennial tower for 3 yrs. I pay $1450 for 647 square feet and have a killer view of the city, indoor pool, and very little crime as long as I avoid 2nd and 3rd ave. For some reason the drug dealers don’t venture up to my block, but it all changes very rapidly. I’ve been grandfathered into my currrent rate. I’m expecting a $100 hike in my rent next year. I dont’ like the fact that I’m blowing $1450 every month without getting any equity. I would be a first time buyer if I did buy and this site has done nothing but scare me. What do folks think? I’ve looked at 50+ condos in belltown in the last 6 months and can’t seem to find anything that’s as good as what I have now. However, I value financially intelligent decisions over having a view – I just don’t want to get burned with a sharp drop in prices….is it coming to belltown, or is belltown bubble-proof? This is the view I have right now. I’m on the 24th floor and life is pretty good. Hopefully the picture attaches…

  41. 41
    botec says:

    I pay $1450/month to live on the corner of 4th and wall in belltown. I would like to get some equity and buy, but this site has me paranoid and i’m a first time buyer and looking for direction. I have 647 sq ft right now on the 24th floor of the centennial tower. I’m estimating my rent to go up by at least 9% next april. Is it time to buy?????

    This is my view….no condo on the market between 400K – $500K will compare:

    http://www.truefocus.net/panorama3.jpg

  42. 42
    biliruben says:

    Sounds like a no-brainer. Keep your view. Belltown is far from bubble-proof. There will be nothing but negative equity for the next 5 years at least, is my guess.

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