Billions of bytes have been consumed discussing the merits of renting vs. buying residential real estate in today’s market. Some of the blog posts on this topic are quite long; some are quite political. You can find two discussions of these calculations on Dr. Housing Bubble and the Irvine Housing Blog. Each has definite opinions on which factors should be included and which factors are beyond calculation or control.
On this blog yesterday, Cindy Allen listed several practical reasons to consider renting vs. buying. Redfin’s corporate blog published this link to a simple tool available through the New York Times for calculating the breakeven point between renting and buying. The link appeared on Redfin’s summary of the Online Real Estate Tools Mini-Hall of Fame Home-Buying Class (worth checking out!).
I used the New York Times link to analyze properties within walking distance of the Americana and Glendale Galleria. My Craigslist search showed 1 bedroom rents at around $1,100 and 2 bedroom rents at about $1,900. I set the parameters to home price appreciation of 1% per year, and rental increases of 1% per year (guessing on factors beyond calculation or control).
Sample listings and results:
608 Hawthorne St #D
3 bed/2.25 bath
$252 per sq.ft.
On Redfin 11 days
This is the least expensive price per square foot in the neighborhood. It is a short sale – as are many properties around here – and last sold in 2005 for $491,500. I assumed a monthly rent of 2200 here, since it is a large three bedroom. According to the calculator, after 23 years, buying will be better than renting.
460 Oak St #318
1 bed/1 bath
$393 per sq.ft.
This is part of a 120-unit complex built 1984. It sold in 2005 for $308,000.
According to the calculator, renting is better than buying over 30 years.
364 W Wilson Ave #1
2 beds/2.5 baths
$382 per sq.ft.
On Redfin 110 days
Originally listed at $438,000; this is a short sale.
Again, renting will be better than buying.