What should rent vs. mortgage payment be?

Rick Lee · Rick Lee's Garage

Wifey and I went house hunting last weekend in Phoenix with our own Pelicanite, Eric Coffey. We pulled the trigger on a pretty nice place with HUGE 2+1 garage space, built-in workbench, tool cabinets, granite countertops in the kitchen around 2k sq. ft. IIRC and all for $1450 a month. That's well below my mortgage and condo payments for my 1048 sq. ft. shoebox in Virginia. I can't recall the sales price of the house we're renting, but I think it was close to $400k. Another place we looked at was 2600 sq. ft., never lived in, still smelled like new carpet and lumber, rents for $1500 a month or for sale at $389k. Even with 20%, which ain't chump change, mortgage payments on those two places would be about double the rent payments. How far apart should these two number be before it makes sense to buy again? At this rate, I'm happy to be a renter. No amount of tax deduction could make a 20% down payment and double-rent-size mortgage payment worthwhile. Wow. Huge bang for the buck in Phoenix these days, but really only by renting.

FWIW, I pay about $1700 a month for my shoebox condo in VA AND I put 20% down when I bought it. And renting it out will probably bring in $1700. So a renter would really only be saving a down payment by renting instead of buying.

Porsche-O-Phile · Porsche-O-Phile's Garage

Lots of places starting to do rent with buy options later (i.e. some of your rent goes into a down payment fund that you have the option to exercise in a couple of years). I'm considering looking at this, but I still think (for the moment anyway) that it's largely a band-aid on the real problem (prices are still way too high).

Jims5543 · 02-26-2008, 07:43 AM

I was always told to add a zero to your rent monthly payment and that is what your "supposed" to purchase for.

Too many times I see prices so far out of line its crazy. The house your renting for $1450 a month can be purchased with a mortgage payment in the $3000 - $3500 a month?

Those sale prices are insane and I too would rather rent that buy. I have to wonder how long before the sale prices come back down to earth.

Rot 911 · 02-26-2008, 07:57 AM

I lived in Scottsdale 20 years ago and it was the same thing. Rent was always much, much less than what a mortgage payment would be.

Rick Lee · Rick Lee's Garage

Strange stuff. Rent around NoVA ain't much less than a mortgage payment. But then that depends on what kind of mortgage you get. I have 4.375% on my ARM at the moment and my loan balance is $268k. PITI is around $1319 and condo fee is $286. So I may actually rent it out for $100 more than my total payment. Way, way out of whack in Phoenix still.

onewhippedpuppy · 02-26-2008, 08:24 AM

Our 2200 sq ft, 4 br 2/12 bath, unfinished view out basement home would probably cost us another $500/mo if we wanted to rent. Nice homes in nice neighborhoods bring a premium when it comes to renting. It's almost stupid to NOT buy.

On the other hand, if our prices were like what Rick is seeing, I don't think I could justify making a purchase.

the · 02-26-2008, 08:27 AM

Only buy something like that $389K house if it won't bother you when it goes down to $275K.

onewhippedpuppy · 02-26-2008, 08:37 AM

Hey Rick, out of curiousity, are these houses being rented because they aren't selling? I know Phoenix was a housing bubble market, are these just desperate sellers renting their home because they can't afford to sell? Around here it's very rare to choose between renting or buying a home, usually it's one or the other.

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by the

Only buy something like that $389K house if it won't bother you when it goes down to $275K.

Well, that's the whole point. It needs to go down to $275k to make the mortgage payment in line with the rental market conditions. My wife and I hate the idea of paying rent vs. a mortgage. But with this kind of disparity, it's not even a contest. Besides, I have my tax and equity vehicle with my condo in VA, which I am keeping for a while.

island911 · 02-26-2008, 08:49 AM

Simply: You are either renting property or renting money (mortgage).

Renting property --easy walk away.

Renting money --potential for growth.

IMO, the cost should be about the same (w/ rents a bit lower in this market.)

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by onewhippedpuppy

Hey Rick, out of curiousity, are these houses being rented because they aren't selling? I know Phoenix was a housing bubble market, are these just desperate sellers renting their home because they can't afford to sell? Around here it's very rare to choose between renting or buying a home, usually it's one or the other.

My guess is a lot of the houses were bought when still relatively cheap, so the current mortgage payment isn't too far off from the rent they want. But buying the same house at current prices would be crazy expensive relative to the rent for the same place. I think most of the signs I saw in front of houses in Phoenix were for realtors, a few non-realtor "FOR RENT" signs. Where I live, I just put an ad on Craigslist and have had probably 10 couples come by to see the place. If I don't have it rented out by the end of this week, I'll probably drop the rent $50-$100, as I can afford that a lot more than having it sit vacant when I go to Phoenix and then have to have a neighbor handle it all for me.

RoninLB · 02-26-2008, 10:04 AM

Many new 4 bed, 2.5 bath in Vegas renting now for $800/mo.

better rented than vacant.

turbo6bar · 02-26-2008, 10:49 AM

If I netted those rents, I'd consider suicide.

RL, there is no perfect answer to your question. I'd weigh the attributes: timeline, tax bracket, appreciation (or depreciation) rates, maintenance costs. Then, you have intangibles like "pride of ownership," "equity building," etc. Unfortunately, those intangibles have morphed into liabilities in Phoenix. It's funny how a slam-dunk can become a total failure. OK, maybe it's not funny...

onewhippedpuppy · 02-26-2008, 11:10 AM

A buddy of mine sold his home in Phoenix about 2 weeks before the bubble burst. He figured he would pretty easily lost $80-100k based on what homes were selling for a few months later. Not to mention the fact that homes in his formerly popular neighborhood were sitting on the market for months after the crash. Lucky SOB, it gave him a damn nice start here in Wichita.

Rick Lee · Rick Lee's Garage

A little over a year ago I sold an HK P7PSP for $1100. A few weeks later a boatload of German police turn-ins flooded the US distributors. Three weeks ago I bought the same gun for $599. And I feel like I made out like a bandit. Maybe house speculation ain't for me.

onewhippedpuppy · 02-26-2008, 11:19 AM

By that reasoning Rick, house speculating IS for you. Double your money isn't half bad!

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by onewhippedpuppy

By that reasoning Rick, house speculating IS for you. Double your money isn't half bad!

I meant that I feel incredibly lucky to have unknowingly timed the market perfectly and saved $500. The stakes are a little higher in housing and mortgages.

frogger · 02-26-2008, 11:29 AM

Go buy a lottery ticket.

Porsche-O-Phile · Porsche-O-Phile's Garage

You've timed it well, but not perfectly.

Trust me, we're still far from any sort of "bottom".

Rick Lee · Rick Lee's Garage

Jeff, your statement is certainly true for some areas, but not all. While sales prices in my area have dropped, it certainly hasn't been as bad here as in many other parts of the country. And the fact that I'm getting calls every day about my place for $1700 and only one guy even asked if that price was negotiable, means it's a little more stable here.

If I were dying to buy a place in Phoenix, I think I'd still wait a year. My guess is FHA is gonna come up with some kind of program to take over distressed houses before they turn into blight and require a rehab loan. I think this would cure the market there quickly, though it would be rife with opportunity for flippers and fraudsters.