Dollar for Dollar


The argument has been debated countless times. The current market has led many to become renters due to financial concerns. The NAR Research published new costs for both homeowners and renters from 2009.

The median monthly housing costs for mortgaged owners was $1,505, non-mortgaged owners $425, and renters $842. Thirty-eight percent of owners with mortgages, 16 percent of owners without mortgages, and 52 percent of renters in the United States spent 30 percent or more of household income on housing.

Most Class A neighborhoods have stabilized rental markets, and in some areas and buildings, increased rental rates. It would be worthwhile to strongly consider purchasing if a deeply discounted home becomes available. These areas will be quicker to normalize due to continuing demand.

Multi-units are still performing strongly in key markets, with high rate of return and easily prevailing over rental costs for similar units. Many owners do not consider purchasing a multi-unit building when considering housing options.

If your housing costs are very similar whether as a purchase or rental, it may be an indication to buy. Short term occupancy may dictate rental housing. Many use the rent ratio to determine financial feasibility. The price-to-rent ratio is determined by purchase price divided by annual rent. The number dictates how much more expensive the home in relation to the rent that can be earned.

How does that translate in the current market, especially without the tax credit? In Lincoln Park, the median rental price for a one bedroom during the past three months was $1325. The median price during the same period for a similar home was $210,000. The rent ratio would be 13% (210000 / [1325*12].) Historically the ratio has been around 15, and anything below that should be an indication to buy. Some have argues to use the ratio of 20 in certain MSAs (metropolitan statistical area).

The New York Times has a great analysis tool which you may be interested in.

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Sherwin L. Sucaldito, REALTOR®
@properties
Member of The Institute of Luxury Home Marketing
Member of the Real Estate Buyer’s Agency Council, ABR
Certified Residential Property Manager, CRPM

Creative Commons LicenseDollar for Dollar” by Sherwin Sucaldito is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.