Doug hangs out in Rancho Santa Fe, where the rent vs. buy comparison is extreme.
Recently there was a house in Rancho Santa Fe that the owner was willing to sell for $1,400,000 that had been rented for $6,900 per month. I used this rent vs. buy calculator because it includes the extra expenses that we should all consider about homeownership:
I used 1% annual appreciation, 20% down payment, 5% mortgage rate, $2,000 annual homeowner’s insurance, $15,000 property taxes, $6,000 annual maintenance, 7-year comparison, 33% tax bracket (should be higher) 1% return on savings, and 2% projected inflation.
Buying came out $138,356 ahead of renting in today’s dollars.
But like livincali pointed out in his comment, the down payment is the sticking point for most. People who pay $6,900 per month in rent have to be thinking about buying, mostly because they need the write-off.
Are there enough higher-end renters that want to put down roots, commit to owning long-term, will take the write-off in trade for the extra expenses like property taxes, insurance and maintenance, and roll the dice on appreciation vs. depreciation that can save up 20% down payments? We’ll see!
Here is the investor cash-flow evaluator featured here previously: http://www.finestexpert.com/
Another buy vs. rent calculator: