Since the housing market dip allowed the rental market to climb, economists have largely touted the financial advantages of homeownership. Now, however, rising home prices coupled with softening rents across the U.S. may start to tip the scales.
Don’t worry – it’s still cheaper to buy than to rent in every major U.S. metro – but the financial advantages fell in the last year, thanks in part to rising mortgage interest rates and sluggish rent price growth. This past spring, it was 33.1 percent cheaper to buy than to rent for households that move every seven years and can afford to put 20 percent down upfront. Homeownership is still in the lead, but the cost discrepancies between buying and renting have narrowed since 2015 (37.5 percent cheaper) and 2016 (41 percent cheaper).
Still, with a 20 percent down payment and the current average mortgage interest rate of 4.35 percent, Phoenix area homeowners are wise to consider buying property. The rent vs. buy calculations are not only helpful for renters interested in saving, but prospective investors who want to gauge potential profits. If you’re contemplating buying a rental property, consider the following two rent vs. buy scenarios in Gilbert and Phoenix.
Note: Most investors in need of financing should plan to put more than 20 percent down upfront. To calculate your exact monthly costs, use a mortgage calculator.
Rent vs. Buy in Gilbert
In Gilbert, a large town just southeast of Phoenix that was recently ranked one of America’s top 20 thriving cities, buying a home is financially savvier than renting one. With a median rent of $1,495 and a median home price is $300,000, it’s 17 percent cheaper to buy than rent Gilbert real estate. For investors who fall under the 25 percent income tax rate, expect to spend $100,000 over the course of seven years. That’s the recommended timeline for homeownership to allow for an optimal return on investment. Meanwhile, renters spend about $20,000 more over the course of seven years – most of which goes toward their landlord(s). Essentially, investors at this price point can cover the cost of their mortgage and maintenance, then take home an estimated $20,000 in passive income – less the costs of management.
Rent vs. Buy in Phoenix
The Phoenix market is less expensive than Gilbert, but the financial advantages of buying are even higher. The median rent is $1,395 while the median sales price is $221,000. Over seven years with all costs considered, the costs of buying come out to $77,000. However, the costs of renting add up to a steeper $110,000. To put it into perspective, buying a Phoenix condo around the median price point instead of renting the same one saves $33,000 – or 30 percent – in under a decade. For landlords, that $33,000 is money earned.
Generating income off your rental property doesn’t need to involve long hours or maintenance headaches. If you’re ready to make a rental property investment while benefitting financially, contact East Valley Property Management today. With over 25 years of experience, East Valley Property Management helps owners generate supplementary income while their property values inherently appreciate.
By Jennifer Riner, Trulia