Buying Verses Renting Debate
On January 24, 2011 The Huffington Post ran an article entitled “Buying A Home Cheaper In Nearly Three Quarters Of Big U.S. Cities: Trulia” where they discussed whether or not renting is still cheaper than buying in the US. Obviously according to the title, it is not. As an avid renter myself, I decided to see if this was true in Wilmington, NC.
I began with searching for the average annual gross income for Wilmington. According to SimplyHired.com, the average gross salary in Wilmington, NC is $32,450 which breaks down to $2,704 a month. Based off my own renting knowledge, most landlords and apartment complexes require you to make 3 times the rent per month. This means the average person can afford $901 a month in rent (for the duration of my calculations, I will use $900 per month as my max rent rate).
Now for my search criteria of homes for sale and keeping with the article’s source of Trulia.com, I searched for single family homes (foreclosures, resales and new construction homes) with a maximum sales price of $150,000, a max of 3 bedrooms and 3 total baths. My target areas were zip codes 28401, 28403, 28405 and 28412. When factoring the monthly mortgage, I did not factor a down payment (loan rate of 100%), the interest rate is 5% (today’s rates are just below this, according to BankRate.com), the average hazard/homeowners insurance was determined by Trulia at $450/year or $37.50/month with the PMI at $65/month (again, factored by Trulia).
Here is what I found:
Zip Code 28401
Max Purchase Price- $149,900
Down Payment- $0
Annual Property Taxes- $1,105
Annual Hazard Insurance- $450
Monthly PMI- $65
Max Monthly Mortgage (for 30yrs at 5%)- $993.73
Max Rent- $900
Savings for Buying vs. Renting Over 30 years- $31,070 (in today’s dollars)
Zip Code 28403
Max Purchase Price- $150,000
Down Payment- $0
Annual Property Taxes- $1,381
Annual Hazard Insurance- $450
Monthly PMI- $65
Max Monthly Mortgage (for 30yrs at 5%)- 1,022.73
Max Rent- $900
Savings for Buying vs. Renting Over 30 years- $31,771 (in today’s dollars)
Zip Code 28412
Max Purchase Price- $150,000
Down Payment- $0
Annual Property Taxes- $952
Annual Hazard Insurance- $450
Monthly PMI- $65
Max Monthly Mortgage (for 30yrs at 5%)- $987.06
Max Rent- $900
Savings for Buying vs. Renting Over 30 years- $45,237 (in today’s dollars)
Zip Code 28405
Max Purchase Price- $149,900
Down Payment- $0
Annual Property Taxes- $718
Annual Hazard Insurance- $450
Monthly PMI- $65
Max Monthly Mortgage (for 30yrs at 5%)- $966.95
Max Rent- $900
Savings for Buying vs. Renting Over 30 years- $52,656 (in today’s dollars)
What does this mean?
Naturally this data is up to interpretation however you see fit. I did exclude certain factors like potential HOA dues which can start at $10/month and go up. I did not factor in annual maintenance because depending on the property, it will vary. I did not include rent increases because I based my figuring on renting directly from the owner and, again based on my own renting knowledge, this rate does not increase annually like an apartment would. I used the rate I pay for renters insurance of $12/month. I did not factor in a down payment. The standard preferred down payment is 20%, I did not include it because unless you have been saving for years, I doubt you have $30,000 in your back pocket if you are in fact renting and paying the maximum you can afford. I also did not factor in the dozens of homes that are for sale below $150,000 (or in a few cases $149,900). This will drop your mortgage payment but I wanted the most home someone could get for $150,000.
Now this data says to me for a home costing me $150,000 with no down payment, per month I am better off renting but where is the investment? Over time, owning is in fact the way to go, especially if I buy a house for $60,000 (according to Trulia there are 61 single family homes currently for sale in Wilmington, NC for $70,000 or less) and my mortgage is less than $900 per month. At the end of the day, my professional renter’s opinion is to buy if you can. You may or may not pay more per month but in the long run, buying is the still the best option.
Resources:
SimplyHired.com : http://www.simplyhired.com/a/local-jobs/city/l-Wilmington,+NC
The Huffington Post: http://www.huffingtonpost.com/2011/01/24/buying-cheaper-than-renting_n_813088.html
Written by Mary Beth Tice, Team Gale Marketing Assistant
Posted in News You Can Use on Feb 01, 2011