Rent vs Own Examples
I'd be curious to see some rent vs. own comparisons for Seattle, based on the latest prices and rents. I'll start off with one I found recently:
Posted on Craigslist for rent (http://seattle.craigslist.org/see/apa/356212818.html), and the ad says it is also for sale. Based on the ad details, it was easy to find the matching MLS listing, which is MLS# 27049028.
Asking price (after two reductions): $379,000
Mortgage payment at 6.5% interest, with 20% down: $1916.43/mo
HOA fee (per listing): $256/mo
Property taxes (per listing): $2575/yr, or $214.58/mo
That brings the monthly cost for a buyer to $2387/mo, and that's before accounting for insurance or maintenance costs. The total carrying costs (adding these and subtracting tax benefits) will probably be around $2400/mo.
Asking rent (without any negotiation): $1600/mo.
Premium to buy: 50%
Note that I made some generous assumptions about interest rates and down payment. If the buyer doesn't have good credit and $80K in the bank for down payment and closing costs, the buying premium would be even higher.
I understand there are "intangible" benefits to owning, and people are willing to pay some premium to own, but 50% is too steep for my taste. To get this particular property down to a more reasonable ownership premium (say, 20% over renting) would require a 25% haircut for the seller, which would essentially put it back to the price they paid for it back in 2004.
Anyone else have good examples like this? I use these to explain to friends why we've decided to rent instead of buy for the time being.
Posted on Craigslist for rent (http://seattle.craigslist.org/see/apa/356212818.html), and the ad says it is also for sale. Based on the ad details, it was easy to find the matching MLS listing, which is MLS# 27049028.
Asking price (after two reductions): $379,000
Mortgage payment at 6.5% interest, with 20% down: $1916.43/mo
HOA fee (per listing): $256/mo
Property taxes (per listing): $2575/yr, or $214.58/mo
That brings the monthly cost for a buyer to $2387/mo, and that's before accounting for insurance or maintenance costs. The total carrying costs (adding these and subtracting tax benefits) will probably be around $2400/mo.
Asking rent (without any negotiation): $1600/mo.
Premium to buy: 50%
Note that I made some generous assumptions about interest rates and down payment. If the buyer doesn't have good credit and $80K in the bank for down payment and closing costs, the buying premium would be even higher.
I understand there are "intangible" benefits to owning, and people are willing to pay some premium to own, but 50% is too steep for my taste. To get this particular property down to a more reasonable ownership premium (say, 20% over renting) would require a 25% haircut for the seller, which would essentially put it back to the price they paid for it back in 2004.
Anyone else have good examples like this? I use these to explain to friends why we've decided to rent instead of buy for the time being.
Comments
I do.
ME
and I'm a much better example than what you have illustrated above.
OK, I'll bite. What is your selling price and how much do you rent for?
Unfortunately, I think this is always the hurdle you can't clear in these conversations. The closest you get is that housing might be flat for a few years, but you still don't make the connection that even with safe investing you could get 5% on your 80k instead of 0%.
When you factor those issues in for the 80k then the 50% premium to buy looks even worse, or you might look at it as if it was a 0 down loan and really figure what the total cost comparison is since you don't have to bring any "capital" with you into a rental.
But yeah, the hurdle is still always the "good investments" and "always go up" presumptions. You can't break faith with logic.
condo for sale below over 550k.
my rent is under $1700
same view et. al.
All the techies may know how to code and all that but hell...I used to handle all your claims when I was an auto adjuster. We all used to laugh about you guys in the office. I'll even fill you all in on how to "game" that system right back.
smoke and mirrors I tell ya!
and now that I'm out of the industry...I don't mind sharing how to work it.
With price to rental ratios so out of whack and return on investment poised to level off, why buy in 2007? What's the hurry? Why not wait and see what happens in 2008?
I project we will not enter the ownership market for a couple of years...
this was the first link I looked at after typing in "Ballard" (lots of overpriced sh*tboxes to go around there...)
They're listing it on CL for $953K yet they just gave notice to their renter who was paying only $2420.
$2420 for $1M home!!! Nothing out of whack there...
$2400 for the upstairs. $1500 for the downstairs. 6% interest on $1M is $5k a month. They say taxes are $6k/year. After it sells for $1M that will go up to $10k/year. Insurance is $1200/year. That adds another $900/moth. To buy this place and rent it out, you have to lose around $1900/month -- or 50% of what you are bringing in on the rent.
http://www.redfin.com/stingray/do/print ... -id=872142
I'm renting the house directly behind it for $2100. Looks fairly comparable to me.
By the time this sells, it should be a 6.5% fixed at least. I figure they have to put at least 1/2 down before they can get their payment close to my rent.
Assuming $50k down and 6.5% interest, mortgage plus interest = $ 1,200
Taxes = $2,235 or $186.25 so you'd be looking at about $1400 per month to buy it, before insurance.
http://redfin.com/stingray/do/printable ... -id=755350
Given those terms, that's a P/R ratio of 292...mind boggling. Anything higher than 180 makes it better to rent and sock away money for a down payment until the market finds a bottom.
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 today based on last sale and Tim's calculator LINK
1600 $333k http://seattle.craigslist.org/est/apa/973874092.html
1495 $280k http://seattle.craigslist.org/skc/apa/974423403.html
1595 $290k http://seattle.craigslist.org/skc/apa/973317490.html
TIP: if you try to do this comparison, and only the intersection is given in the craigslist ad, you can use the street view to browse down the street and find the house by matching on the picture. You can eventually get the address by guessing until you get a hit. This is time-consuming, but I did it on several houses earlier that I was really interested in.
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.
Renton, depending on who you ask has seen homes that were brand new in 07 for $480s come down to $370s now.
"depending on who you ask"... is that that someone's name?
anyway - I am more puzzled by the premise that you should base your rent at some % of sales price - when sales prices have been the only thing affected by the bubble. Pretzeled logic, imho
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?
Check out this blog below:
http://www.urbanashley.com/2008/12/11/q13-interview-what-is-going-on-in-our-rental-market/
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.
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.
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.
http://seattle.craigslist.org/see/apa/980423801.html