I had this “TO LEASE OR BUY” dilemma in 2009 when on one beautiful day we got a knock on our front door. An agent representing a bank said that our 2 bedroom and 2 bath condo unit that we were leasing in the ghetto part of the Valley for about 2 years will be up for sale. That was a shocker for my family. With a two year old baby (who is a preemie) and a rambunctious Terrier dog, moving out to another rental will be a challenge and in my opinion, unthinkable with our situation. So, the thought of buying the unit crossed my mind. The numbers had to be crunched and the “Buy” option needs to be feasible. And indeed, it was.
- Rent $1,600/monthly
- No property taxes
- No HOA dues
- No property insurance
- No property maintenance
- Monthly payment of $816 (30 years fixed at 5% APR)
- Property taxes (impounded monthly) $264 per month
- HOA dues of $363 per month (includes earthquake insurance)
- Personal homeowers insurance $75 per month
- Low property maintenance; common areas are HOA responsibility
The total monthly cost to buy is $1,518 (all-in) versus $1,600 for renting. There’s an $82 benefit from owning a home versus leasing. It is not much but for a financial expert, that is positive cash flow. Positive NPV! If we factor-in tax refunds and the potential to gain equity- the answer is quite obvious. The “Buy” option is the winner.
Much to my surprise, a year and a half after we purchased our unit for $155,000 the unit directly below us hit the market as a short sale. It was listed for $190,000 and sold a few months later for $185,000. What does this say? That’s a $30,000 equity gain for me and my family. A 19% return for a one year investment. Not bad, not bad at all. In this market, where prices and interest rates are scraping the bottom, the opportunity to reap gains from buying your first home, dream home or investment home is vast. As the adage puts it succinctly “There’s nothing to lose but everything to gain.”