Why would one rent when it's cheaper to buy?

Question

in applicable markets? The market I'm looking at has 30k-40k priced houses that rent for $600+. Obviously some have bad credit, but that surely is not the reason why one would pay more to rent, is it?

Thanks
Fred

Account Closed · Answer

I've got to admit, I can't understand it.

Some of it is Section 8, but it ticks me off to have the governement using my tax dollars to pay $800 rent for a $30,000 house.

My tenants tend to be people new to the area and looking around before they buy, or people who know they aren't staying more than a couple of years.

I have tenants who are in construction, where their income isn't even throughout the year, and they are afraid they wouldn't be able to make the mortgage payment in the winter.

Some of my tenants can't qualify for a big enough mortgage to buy a house, but believe me, there is no such thing as a $30,000 house around here, or I wouldn't have any tenants at all. They'd all be home owners.

Eric Reinard · Answer

WOW, really? What a revelation.
Now if I was covering the entire spread for a landlord, then I would certainly buy instead of rent. I think you missed the point.

Paul Cordero · Answer

It is not always cheaper to buy vs. rent.  It all depends on the market and how long you rent for.  For example, I rent.  Here is why.

I live in Scottsdale, AZ where a cheap 3/2 SFR goes for around $250K.  Lets say I can get 100% financing @ 6% on a 30 year fixed (dream loan), my payment is $1498, then I add taxes and insurance which is easily another $200 and MI, bringing my total to $1698/mo.  I had to come to the table with $5K in closing costs.  Over the course of the 1st year, I have paid $25,376.  I rent the same house for $1400 which will cost me $16,800 over the course of the 1st year, and I don't have to pay for any maintenence.

It is common sense to me, that it is not wise to take on a mortgage right now, unless I can put 20% down and have at least 6 months in PITI reserves.  So I will continue renting until I do so.

Ken Mitchell · Answer

many landlords have owned their rentals for many years and aren't forced to use expense loan products or pay PMI like many of their tennants would be...

its not always cheaper to buy....

Michael Rossi · Answer

Reinman,

Believe it or not, the landlords who make money have to charge rent that covers the mortgage, taxes, insurance, maintenance and all the other expenses that 'add up' and then add a profit on top of that.  So, unless the landlord is losing money or bought the property at a lower price, it does always cost more to rent than buy.

Mike

Eric Reinard · Answer

I agree with the posts concerning people who prefer to rent, your only responsibity is your lease.

Also, it's not alway cheaper to buy. especially when it comes to property taxes. In Austin 60% of the residents rent because the taxes are insane. Taxes in Austin can easily add $200-$300 a month to the bottom line. Plus, add in PMI, Home owner's insurance, maintenance, etc.. and it adds up.

N.A N.A · Answer

I don't know what's worse - that situation, or when you see an MLS saying "instant equity" on a house that has an ARV of $300k, listed for $250k, but needing $60k of work.   :lol:

John M. · Answer

This is probably obvious, but: What's the ultimate purpose for a buyer to rent out property? Pay off monthly expenses while getting positive cash flow, then after the house is paid off, sell the property?

Michael Rossi · Answer

The purpose of renting out property (or any other business) is to make money.  With rentals, you make money at least 5 ways:

1. instant equity (buying at a discount)
2. cash flow
3. paydown of principal (paid by tenants)
4. appreciation over time
5. tax depreciation

It is certainly not necessary to ever sell the property - you can keep collecting that monthly income forever.

Good Luck,

Mike

Matthew Mucker · Answer

Buying has significant upfront costs. Selling a property costs even more (in the typical transaction in the US).

If someone is going to live in an area for only a year or two, then the closing costs to buy a house, the first 2 year's payments that almost all go to interest, then the closing costs and commissions to sell the property can quite easily make owning a money-losing proposition.