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Thursday, January 5, 2012

Is it cheaper to buy than rent? Yes. Really? YES.

Recently, news reports and friends have said its now cheaper to buy than rent in some places. Hard to believe. But is it true? Yes. Absolutely.

2011 was a brutal year for real estate sales. As a result, there are a lot of incredible deals out there. Sure, there are foreclosures, auctions, short sales, and all of that, but frankly, war stories of 6 month processes only to be outbid at the last minute and the general uncertainty around all that make it a pretty unappealing way to go about buying a home. I’d rather buy a home that’s new and go through an easy and clear process. The good news is that right now, prices in places like PCL are so good and mortgage rates are obscenely low that you can pay less for a mortgage than you would to rent the same place.

First, let's look at a couple of PCL units currently listed on Redfin:
  • Unit 335 is a 1 bed, 1.5 bath, 1169 square foot loft, showing up on Redfin at $269,000.
  • Unit 358 is a 1 bed, 1 bath, 750 square foot flat, listed for $235,000

Using CNN Money's Mortgage Payment Calculator with a totally conservative standard 20% down payment and 4.125% interest rate (you will definitely beat that today, and PCL sales people can point you to loans where you pay as little as 3.5% down):
  • Unit 335, the monthly payment, including insurance and taxes, is $1418 per month. (All in, HOA dues and higher rates on a mortgage with only 3.5% down, its more like $1700, but still, CHEAP)
  • Unit 358, same mortgage terms, taxes and insurance included, is $1245 per month.

Comparing to renting (apples to apples, keeping it to 1 bedroom 1 baths, utilities are not included in these rentals either):
  • The Uptown is currently charging $1750 for a 725 square foot 1 bed 1 bath (and you have to pay insurance!). Compare that to unit 358, and its $500 more per month TO RENT!
  • Avenue 64 in Emeryville is in a similar industrial mixed use area, and they are charging $2040 per month for a 735 square foot 1 bed 1 bath; that's $800 (65%) more!
  • Prometheus' Icon at Doyle, which was built as condos for sale and went on the rental market when no one was buying is charging $2150 per month for a 1050 square foot 1 bed 1 bath. Compare that to unit 335, which is 100 square feet bigger, and again you'd pay $750 less per month to own!
  • Case in point, someone is renting a PCL unit (on craigslist): an 850 square foot 1 bed 1 bath, for $1700 a month. You'd probably pay about $1300 a month to buy the same unit today.

A good average figure for units at PCL right now is $300k, which more than covers most of the 1 bedrooms and gets you pretty close to a 2-bedroom. For the same mortgage, taxes and insurance, you could buy a 300k unit for less than $1600 per month right now! Or shoot, buy unit 335 or 358 and spend the rest of that money making your new home incredibly cool with upgraded finishes and really nice furniture. While you're at it, buy yourself a nice thank you trip to Hawaii.

Oh, and let's not forget, that when you buy, your mortgage payments (unlike rent payments) are tax deductible. That means you'll pay taxes on about $20k less of your income - that's probably a few thousand dollars. Think about that on April 15th.


Blogger Maia Dobson said...

This is a compelling mortgage deal because of the low down payment offer for those units. I've been acquainted to equally concept from Long Island mortgage offices and it seems like I just have to make a choice now.

April 26, 2012 at 11:28 PM  
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