Buying Cheaper than Renting in two-thirds of Major Counties

by devteam July 9th, 2015 | Share

Paymentsrnon a mortgage used to purchase a three-bedroom home were more affordable thanrnpaying rent on a similar home in 66 percent of the counties recently analyzedrnby RealtyTrac.  The company, which lookedrnat data in 285 U.S. counties found that buying beat out renting in 188 of them.rn </p

RealtyTrac’srn“buy-or-rent” analysis compared the percentage of median household income in 285rnU.S. counties that would be needed to pay the fair market rent on a 3-bedroomrnproperty to the percentage that would be needed to make monthly house paymentsrn- including mortgage, insurance and property taxes – on a similar property.</p

Acrossrnall 285 counties analyzed, the average percentage of median household income</bneeded to rent was 29.96 percent while the average percentage of medianrnhousehold income needed to buy was 29.00 percent.</p

Areasrnwhere it was cheaper to buy than rent, however, did tend to be those that hadrnbeen most impacted by foreclosures including Miami-Dade, San Bernardino County,rnClark County (Las Vegas), Broward County, Florida, and Wayne Countyrn(Detroit.)  The portion of income neededrnto buy in those counties ranged from 42 percent in Miami-Dade to 23 percent in WaynernCounty.</p

Thirteenrncounties switched from being more affordable to rent in 2014 to more buyerrnfriendly in 2015.  These includedrncounties housing Seattle, Reading, Pennsylvania, Indianapolis, OlympiarnWashington, and Cincinnati. </p

Therernwere 97 counties where renting is more affordable than buying and among the toprnthree – where the income required to buy exceeded 50 percent – were inrnCalifornia.  Rounding out the top fivernwere the counties in which Seattle and Denver partially reside. </p

Twelverncounties moved from being more affordable to buy in 2014 to being more affordablernto rent in 2015 including Sacramento County and San Joaquin County, California;rnLancaster County, Pennsylvania; Spokane County, Washington; and Polk County,rnIowa.  </p

RealtyTracrnalso looked at properties that were what they called “Buy-to-Rent” purchased duringrnthe first five months of 2015.  Theyrnfound those properties are showing a slightly decreased return on investmentrnthan properties purchased during the same time period in 2014 in 169 of the 285rncounties analyzed (59).  The morernrecently purchased homes had a gross rental yield of 8.94 percent compared torn9.07 percent for an equivalent three-bedroom property bought a year earlier.  </p

Averagernrental rates on 3-bedroom properties increased 3 percent from a year ago acrossrnall 285 counties analyzed, while average home prices on 3-bedroom propertiesrnincreased 4 percent across those same counties.</p

“Asrnhome price appreciation moderates and aligns more closely with trends in rentalrnrates, the returns in the buy-to-rent market are stabilizing and becoming morernpredictable – if not as lucrative as they were for investors who purchased arnfew years ago near the bottom of the market,” said Daren Blomquist, vicernpresident at RealtyTrac. “Buying rentals continues to be a brilliant strategy</bthat allows investors to hedge their bets in a real estate market shifting awayrnfrom homeownership and toward a sharing economy."</p

Returnsrnon investment increased in 41 percent (116) of the counties as rental rates outpacedrnhome price appreciation.  Major countiesrnwhere potential buy-to-rent returns increased from a year ago included OrangernCounty, California; King County, Washington; Santa Clara County, California;rnPhiladelphia County, and Suffolk County. </p

Countiesrnwith the highest potential rental returns for 3-bedroom properties purchased inrnthe first five months of 2015 were Clayton County, Georgia (Atlanta) (24.05rnpercent annual gross rental yield), Bay County, Michigan (19.23 percent),rnMahoning County, (Youngstown) (19.04 percent), Bibb County (Macon) metro arearn(18.11 percent), and Philadelphia County, Pennsylvania (17.67 percent).

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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