Is the SD rental discount from owning really 50%? Is that pre-tax or post-tax deduction? Is a 50% rental discount from owning way out of whack with historical figures?
Recently it has been about 50% cheaper to rent than own. SFR’s have been grossing about 4% of the price of the home.
Example: 500 K home in Clairemont, rents for about $1700 per month. 1700 x 12 = 20,400. 20,400/500,000 = 4.1%.
Assuming that carrying costs on a purchase total up to about 8% (6.5% loan, 1.2% Taxes, Insurance, Maintenance). Then the number is about half the cost of owning. Taxing tax consequences into account, renting can be anywhere between 50% to 85% the cost of owning (depends heavily on the person’s tax situation).
In 2001 I sold a rental in Clairemont for 280K. The rent at that time was about 1300/month. The gross rent in that case was about 5.6%. That’s about 40% more than the 4% number I would assume for today, and is consistent with Rich’s analysis.
SO, to answer your questions:
Yes, the discount from owning is about 50% before tax. And yes it is out of whack with recent history.
