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  • August 14, 2008 at 6:46 PM #13594
    CricketOnTheHearth
    Participant

    Here I try some number-whackage to compare renting and buying. This bears probably no resemblance to the established methods for determining which makes more economic sense, but I thought I would toss it out here for discussion.
    My apologies for the funkiness of the “tables”, the blog does not allow for good table-formatting.

    The ‘rent’ used here is based on the current asking rent of my beloved, former apartment (which IMO would have been one of the best condos in Rancho Bernardo if they had ever converted it.)

    What I am basically looking at here is, how many years would I rent the place before what I paid for rent in total, was equivalent to buying.

    First scenario: Rent hikes of 10% per year (the legal maximum):

    Year Monthly Annual Total
    1 1500 18000 18000
    2 1650 19800 37800
    3 1815 21780 59580
    4 1996 23952 83532
    5 2196 26352 109884
    6 2416 28992 138876
    7 2657 31884 170760
    8 2923 35076 205836
    9 3215 38580 244416
    10 3537 42444 286860
    11 3891 46692 333552
    12 4280 51360 384912
    13 4707 56484 441396
    14 5178 62136 503532
    15 5696 68352 571884
    16 6266 75192 647076
    17 6892 82704 729780
    18 7582 90984 820764
    19 8340 100080 920844
    20 9174 110088 1030932

    Second scenario: Annual rent hikes of 5%:

    Year Monthly Annual Total
    1 1500 18000 18000
    2 1575 18900 36900
    3 1654 19848 56748
    4 1736 20832 77580
    5 1823 21876 99456
    6 1914 22968 122424
    7 2010 24120 146544
    8 2112 25344 171888
    9 2216 26592 198480
    10 2327 27924 226404
    11 2443 29316 255720
    12 2565 30780 286500
    13 2694 32328 318828
    14 2828 33936 352764
    15 2970 35640 388404
    16 3118 37416 425820
    17 3274 39288 465108
    18 3438 41256 506364
    19 3611 43332 549696
    20 3790 45480 595176

    This pretty much wowed me as to how much of a deal renting appears to be right now. To buy a decent condo in RB (~$300,000), does not come out to be cheaper than renting until at least 10 years’ of renting, if not longer. And this does NOT count property taxes, HOA fees etc which add to the cost of the purchased dwelling over time.

    To buy a decent house in RB (~$550,000 currently) equates to no less than 15 years’ of rent, and possibly to much longer than that. And most “decent houses” in RB have a lot less ‘green space’ around them than this apartment does (it is really quite an exceptional place for Southern California).

    Prices would have to drop to $170,000 for a condo and $240,000 for a house just to be equivalent to 7, and 9 years’ renting, respectively.

    I am beginning to understand the rationale of these retirees who rent in a nice apartment in this complex for the rest of their lives.

    This just absolutely reinforces the current wisdom of rent now, wait for bottom, then buy.

    August 14, 2008 at 7:07 PM #257041
    Eugene
    Participant

    If you pay 300,000 for a condo, in 10 years you’ll have a paid-off condo that’s worth at least 300,000 and maybe more.
    If you continue renting starting at $1500/month, in 10 years you’ll have … what?

    The correct way to compare: how much you have to pay someone other than yourself to own the place (interest, taxes, insurance, HOA fees, minus tax savings), vs. how much it costs to rent.

    August 14, 2008 at 7:07 PM #257222
    Eugene
    Participant

    If you pay 300,000 for a condo, in 10 years you’ll have a paid-off condo that’s worth at least 300,000 and maybe more.
    If you continue renting starting at $1500/month, in 10 years you’ll have … what?

    The correct way to compare: how much you have to pay someone other than yourself to own the place (interest, taxes, insurance, HOA fees, minus tax savings), vs. how much it costs to rent.

    August 14, 2008 at 7:07 PM #257224
    Eugene
    Participant

    If you pay 300,000 for a condo, in 10 years you’ll have a paid-off condo that’s worth at least 300,000 and maybe more.
    If you continue renting starting at $1500/month, in 10 years you’ll have … what?

    The correct way to compare: how much you have to pay someone other than yourself to own the place (interest, taxes, insurance, HOA fees, minus tax savings), vs. how much it costs to rent.

    August 14, 2008 at 7:07 PM #257284
    Eugene
    Participant

    If you pay 300,000 for a condo, in 10 years you’ll have a paid-off condo that’s worth at least 300,000 and maybe more.
    If you continue renting starting at $1500/month, in 10 years you’ll have … what?

    The correct way to compare: how much you have to pay someone other than yourself to own the place (interest, taxes, insurance, HOA fees, minus tax savings), vs. how much it costs to rent.

    August 14, 2008 at 7:07 PM #257331
    Eugene
    Participant

    If you pay 300,000 for a condo, in 10 years you’ll have a paid-off condo that’s worth at least 300,000 and maybe more.
    If you continue renting starting at $1500/month, in 10 years you’ll have … what?

    The correct way to compare: how much you have to pay someone other than yourself to own the place (interest, taxes, insurance, HOA fees, minus tax savings), vs. how much it costs to rent.

    August 14, 2008 at 7:42 PM #257046
    surveyor
    Participant

    Has nobody here ever googled a “rent vs. owning” calculator?

    August 14, 2008 at 7:42 PM #257227
    surveyor
    Participant

    Has nobody here ever googled a “rent vs. owning” calculator?

    August 14, 2008 at 7:42 PM #257230
    surveyor
    Participant

    Has nobody here ever googled a “rent vs. owning” calculator?

    August 14, 2008 at 7:42 PM #257289
    surveyor
    Participant

    Has nobody here ever googled a “rent vs. owning” calculator?

    August 14, 2008 at 7:42 PM #257336
    surveyor
    Participant

    Has nobody here ever googled a “rent vs. owning” calculator?

    August 14, 2008 at 8:20 PM #257056
    temeculaguy
    Participant

    rent vs own calculators are kinda tricky because they ask you determine the annula appreciation. If you use case shiller, there is no appreciation. To make it easy, use this formula, when the asking price is equal to or less than 150 rent payments, you can start looking, when it hits 125 look real hard, at 100, it’s a no brainer. If you are paying 1500 a month, 150k=buy immediately, 187k, look real hard, 225k, that when you begin to shop but anything more, rent. The hoa, taxes, insurance are roughly offset by the tax deduction so just go with a pure rent multiplier.

    You may think it is not possible but investors shop with numbers, not emotions. they can find 125k multiplier properties elsewhere, so that is where they are going to go, not 200x multipliers. If they wont buy and you wont buy, the price goes down, it really is that simple.

    August 14, 2008 at 8:20 PM #257237
    temeculaguy
    Participant

    rent vs own calculators are kinda tricky because they ask you determine the annula appreciation. If you use case shiller, there is no appreciation. To make it easy, use this formula, when the asking price is equal to or less than 150 rent payments, you can start looking, when it hits 125 look real hard, at 100, it’s a no brainer. If you are paying 1500 a month, 150k=buy immediately, 187k, look real hard, 225k, that when you begin to shop but anything more, rent. The hoa, taxes, insurance are roughly offset by the tax deduction so just go with a pure rent multiplier.

    You may think it is not possible but investors shop with numbers, not emotions. they can find 125k multiplier properties elsewhere, so that is where they are going to go, not 200x multipliers. If they wont buy and you wont buy, the price goes down, it really is that simple.

    August 14, 2008 at 8:20 PM #257239
    temeculaguy
    Participant

    rent vs own calculators are kinda tricky because they ask you determine the annula appreciation. If you use case shiller, there is no appreciation. To make it easy, use this formula, when the asking price is equal to or less than 150 rent payments, you can start looking, when it hits 125 look real hard, at 100, it’s a no brainer. If you are paying 1500 a month, 150k=buy immediately, 187k, look real hard, 225k, that when you begin to shop but anything more, rent. The hoa, taxes, insurance are roughly offset by the tax deduction so just go with a pure rent multiplier.

    You may think it is not possible but investors shop with numbers, not emotions. they can find 125k multiplier properties elsewhere, so that is where they are going to go, not 200x multipliers. If they wont buy and you wont buy, the price goes down, it really is that simple.

    August 14, 2008 at 8:20 PM #257299
    temeculaguy
    Participant

    rent vs own calculators are kinda tricky because they ask you determine the annula appreciation. If you use case shiller, there is no appreciation. To make it easy, use this formula, when the asking price is equal to or less than 150 rent payments, you can start looking, when it hits 125 look real hard, at 100, it’s a no brainer. If you are paying 1500 a month, 150k=buy immediately, 187k, look real hard, 225k, that when you begin to shop but anything more, rent. The hoa, taxes, insurance are roughly offset by the tax deduction so just go with a pure rent multiplier.

    You may think it is not possible but investors shop with numbers, not emotions. they can find 125k multiplier properties elsewhere, so that is where they are going to go, not 200x multipliers. If they wont buy and you wont buy, the price goes down, it really is that simple.

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