I have read countless articles about whether one should rent or buy but none of them put actual properties that were comparable in the same neighborhoods to the test. So, I thought I would do just that.
Let’s take two properties in San Rafael, CA (zip code 94901). One that just sold (74 Crestwood) and one that just leased (67 Maywood). These two homes are within 4 or 5 blocks from each other if you are walking, much closer “as the crow flies”. They both have Mt. Tam Views, same school districts, etc. The main difference between the two homes, both very nice, is that 74 Crestwood is all on one level with a large level lot and 67 Maywood is two stories on a hillside (unusable) lot. So, outdoor living at 67 Maywood is on decking and 74 Crestwood on a level landscaped lot.
Let’s start with 67 Maywood that was recently leased for $3900 per month:
- 3 bedrooms + “office”, 2 full bathrooms
- 2 stories
- 2156 sf of living space (according to the tax records)
- no useable yard
Now let’s discuss 74 Crestwood, which recently sold for $740,000:
- 4 bedrooms (or 3 + “office”), 2 full bathrooms
- 1 level
- 1722 sf of living space (according to the tax records)
- 7710 sf flat, landscaped lot
Here’s the interesting part: At the selling price, if you put 20% down ($148,000) and your interest rate was 4.375% (and believe it or not, I think rates are significantly less right now) on a 30 year fixed loan your monthly payment of principal and interest would be $2955.77.
Now you are probably asking yourself, “Yeah, but what about property taxes and homeowner’s insurance?” Well, if you add in the property taxes ($693.75+/-) and insurance ($92.50+/-) then the grand total of your monthly payment for Principal, Interest, Taxes and Insurance (PITI) would be $3742.02.
Right now, we still have a mortgage interest deduction. If you factor that in, with the credit back on your taxes, the net monthly cost of owning this home would be $2579.84.
Even if you only put 10% ($74,000) down, and you add the cost of Mortgage Insurance (PMI) after the tax deduction your monthly cost of ownership is still only $3177.99.
To me, there are only two reasons it wouldn’t make sense to buy: 1) you don’t have the down payment; or 2) you travel or want to travel extensively. But even then you could rent it out for positive cash flow. So, now we’re back to only one reason: lack of down payment.
After 30 years of renting at $3900 per month, that’s a whopping $1,404,000 that you have deposited into your landlord’s account. And, you… well, you are still renting and you have nothing.
After those same 30 years, if you owned that home, your monthly payments would be reduced to around $1000 per month for your taxes and insurance.
So, while buying isn’t for everyone, if you are interested in doing so this makes a strong case that now is the time to do it.
This numbers were calculated with a formatted spreadsheet that I obtained from Pierre Masquilier with Terra Mortgage. To see what you qualify for, or what today’s rates are contact Pierre Masquelier.
If you are ready to buy (or lease, until you are ready to buy) give me a call or send me an email.
If you just want to see what’s available through our MLS, click here.
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