Rent or buy? Gosh, isn’t that the $64 Million Dollar question? And as many things go in real estate, the answer depends on your circumstances.
Let’s start with the current state of rentals here in Phoenix.
In the ARMLS rental database the overall average lease rate for active listings is $1,820 per month and the average sq. ft. is 1,932. For apartments, the average rent is $1,568 with an average sq. ft. of 1,102 giving us an average rent of $1.42 per sq. ft. A year ago the rate was $1.22 per sq. ft., so the rise in asking price is 16.6% in just 12 months. The number of active apartment rental listings has declined 10% from 643 to 578 since last year.
In nutshell, rents are rising and there are fewer homes to rent. And by the way, who wants to live in an apartment? Seriously. So let’s just focus on the houses.
If you are paying $1820 a month to rent a house, you might be thinking that you could be spending that money on a mortgage payment instead. For a low down payment, FHA-type loan, that gets you about $265,000 in house spending dollars. That gets you into a pretty nice house! But is it still better to buy or rent?
Check out this great rent-vs-buy calculator that the NY Times put together. It factors in all the costs of both buying and renting, and analyzes the pay-off for each. Given the scenario above, spending $1800 in rent vs $1800 in mortgage (plus taxes and insurance), if you are staying put for at least 2 years, buying will probably be the better choice, financially speaking. If you are spending $1500 in rent, but could buy an equivalent house for $225,000, in two years, you will be ahead if you buy instead of renting.
Given the current climate in Phoenix right now, if you stay at least 2-3 years at the same address, you will most often spend less if you buy a home rather than renting an equivalent home.
Of course, there’s the matter of the down payment…for an FHA loan, you must put down at least 3.5% of the purchase price for your down payment. Add to that closing costs, and you are looking at about $13,500 in cash. Yikes!
But start thinking you will never live long enough to make this dream a reality. It is possible to negotiate with the seller to add the closing costs to the purchase price, effectively financing those closing costs. AND you might be eligible for on of the down payment assistance programs that could cover the down payment. With $1000-2000 in your pocket, you could cover the remaining costs. Now that’s a pretty sweet deal!
Check out homes in the East Valley – Mesa, Tempe, Chandler and Gilbert – that might make great alternatives to renting…