By Ken Janzen
Is renting in today’s market really a good deal?
What do the numbers tell us? To get an idea, let’s take a look at the 85254 ZIP code as of today. MLS offerings indicate that a typical monthly rent on a 3 bedroom home in the area might run about $1800 a month. The MLS also shows that there are over forty 3 or 4 bedroom homes in the ZIP code listed for sale at less than $230,000.
Given this information, let’s ask the question again. Is renting in this market a good deal? The math tells us that for a significant number of people, it probably is not.
A fun way to test this is to run a simple cost/savings comparison and there are some reasonably good, easy to use, on-line Rent versus Buy calculators readily available to consumers. In my opinion, two of the better ones are offered through Freddie Mac and Yahoo!®. Freddie Mac’s calculator will allow the user to account for acquisition and selling expenses as well as the amortization of the loan (both links are listed below).
Using the 85254 zip code rent estimate from above and assuming a very modest 2% rent increase per year, a tenant would pay in excess of $114,000 in rent and insurance payments over a 5 year period. Wow!
What if that same tenant could scrape together less than $10,000 and bought a home, say for about $225,000? Over the same five year period, assuming a 28% combined tax bracket for the buyer, allowing for $6000 in maintenance expenses, 6% in selling expenses and assuming the home experiences zero appreciation, Freddie Mac’s calculator estimates that the “tenant-turned-buyer” would be over $30,000 ahead! Now we’re talking!
It’s interesting to note that the total monthly payment on the example home is estimated to be lower than the typical rent and the economic benefit of buying is significant, even without considering the potential income tax savings generated by mortgage interest and property tax deductions!
These incredible circumstances are not confined to just one or two neighborhoods or ZIP codes. There is money to be saved all across the valley. Don’t just talk about it, SHOUT about it!
Ken Janzen is a Senior Mortgage Consultant with the Counsel Mortgage Group, LLC. Contact Ken to help you evaluate whether you should rent or buy at email@example.com. Counsel Mortgage Group, LLC is an Arizona mortgage brokerage. You can learn about them at www.counselmortgage.com. Copyright © 2011 Counsel Mortgage Group®, LLC l