If you were to believe all of the rent vs buy comparisons that circulate on main stream media you might get the impression that buying a home is the bargain of a century in many U.S. housing markets. That’s the conclusion many real estate pundits will offer you, especially if they have a vested interest in selling you on a an expensive home purchase. The truth is that it may be cheaper for you to rent rather than buy. Ultimately it is you the consumer who should answer the rent vs buy question after carefully running the numbers. In a recent post at my sister site, Aaron Layman Properties, I did just that, debunking a very poor comparison attempt by Trulia.
“It turns out that renting a home can be just as cheap as buying a home in the Houston area. Looking at the latest 3rd quarter sales for Cinco Ranch we can see that the average cost of a home was $400,925. A comparable size single-family lease home in Cinco was $2915 per month. Of course if you didn’t mind losing some square footage, the average price of a single-family lease home in Cinco was much lower at $2408 per month. Even when adjusting for similar size properties, it is only about 7 percent cheaper to buy a home than rent one in Cinco Ranch.
Looking at the latest MLS numbers from September sales in Houston, you will see a similar picture. The average price of a home sold in Houston in September 2016 was $277,849. The average price of a Houston area single family lease during September was $1764. Although the size of that average rental home was likely a bit smaller, the real monthly payment on the rental was more affordable than your average Houston home purchase. I would also point out that this doesn’t even take into account the deals you can find on apartments with Houston’s saturated multifamily market. As of yesterday, I counted no less than 6 Katy apartment complexes offering two months of free rent on long-term leases.
|Purchase Option||Cinco Ranch||Houston TX|
|Average Sale Price||$400,925||$277,849|
|Average Sq Ft of Sold Home||3,275|
|P&I Payment (80% LTV @ 3.50%)||$1,440||$998|
|Property Taxes @ 3% Tax Rate||$902||$590|
|Average Monthly Cost||$2,727||$1,863|
|Average Lease Price||$2,408||$1,764|
|Average Rent For Similar Size Home (3275 Sq Ft)||$2,915|
|Monthly Payment Difference||$188||–$99|
So how can Trulia’s comparison be so blatantly skewed toward buying? I can point to at least three problems with their analysis. First they assume every home buyer is going to benefit from itemizing deductions. That is not always the case, especially if you buy a modest home. You really need to spend over $250,000 before the benefit of itemizing kicks in. The second fallacy in Trulia’s (and most other comparisons for that matter) analysis is that they grossly underestimate the property taxes. If you are waiting on Trulia or any other real estate industry puppet to inform you about Texas’ operationally corrupt property tax system, you’ll be waiting for a long time indeed. Of course undershooting the monthly property taxes does make buying look more appealing. Third, Trulia’s median Houston home value of $176,513 is blatantly ridiculous. The cost of a median single family home sold in March 2016 was actually $209,900. The only way to get to the low-balled home value listed by Trulia is if you include all the crap shack condos and townhomes throughout Houston.
The point of this exercise isn’t to scare you out of buying a home. Indeed, buying may be the better option for you depending on your circumstances. It’s important to do your own calculations using realistic estimates for your out-of-pocket costs. As we have just seen, using pie-in-the-sky estimates from industry hacks can provide you with a false impression of the real carrying costs of owning a home. As I have said before, every day is not a great day to buy a home…Some days are better than others!”
If you don’t want to buy a home, we have plenty of nice apartment homes and single family lease homes that offer a perfectly good substitute. Just fill out the sample form on my contact page, and I would be happy to find one for you.