Is it cheaper to own or rent a home? I did a Craigslist search for a close in home with the complete property address listed so I could then research what I thought it would sell for as a comparison. I happened to find a home that sold for $150,000 at the end of last year. I can tell from the pictures in RMLS and the ones posted on Craigslist that some work has been done. I think I am being generous with adding $10,000 for a theoretical market prince of $160,000.
After adding in the property taxes and an educated amount for home insurance we get a payment of $1013.86 per month. The house is listed for $1250. The downturn in the real estate market has made owning a home more affordable than it has been in years. If you put down the FHA 3.5% down for a loan of $155,440 your payment would drop to $992 plus any required mortgage insurance. With 20% (investors may be required to put 25%) the payment is only $861 per month.
We need to acknowledge that this is massively simplified. Not everyone will qualify for a 4.0% loan, we haven’t addressed down payments, maintenance costs, tax advantages, market risks or anything else. It shows us one reason that investors are retuning to the market and the investment properties should cash-flow positive which they didn’t do at the peak of the market: appreciation was the carrot (and therefore not a sound investment strategy looking back). It shows how competitive the rental market has become and that may give some potential buyers reason to further investigate their own situation to see if which scenario works best for them.