Continue to Rent or Time to Buy?
The rental market has been strong in much of the country for the past several years. With the market downturn came an increase in demand for rental properties. Whether because individuals had to move and yet couldn’t or didn’t want to sell their home due to market conditions so were forced to rent. Or those who lost their home due to foreclosure and were also now forced to rent. Yes, there has definitely been a demand for rental properties.
And what was the result? Many areas of the country saw a spike in rental rates. For example in Huntersville average rates for rental properties increased by over 7% back in 2011. And for many now the question is: Rent or Buy?
That of course depends on several factors:
- Personal circumstances: Do you like the flexibility of changing your surroundings? Moving to new areas? Then perhaps renting is a better option for you.
- Personal finances: Are you concerned that your finances may change and would like the flexibility of reducing your monthly living expenses? Then again, renting gives you that option whereas a fixed mortgage does not.
- Cost of renting versus buying in your area: Compare the costs of renting a home versus a mortgage payment for a similar home. But don’t forget to factor in about 1% of your initial investment for annual maintenance if you own.
- Appreciation of your investment: Look at the overall economic health of the area. Are people moving in and is the area experiencing growth? Then likely your home will also appreciate in value.
- Emotional factors: Do you like the idea of owning a home, the freedom to paint walls in whatever colors you choose, customizing your space? Then you may be ready to buy.
If you’re still not sure if it makes sense to rent or buy then you can use the price-to-rent ratio. By taking the average list price of homes in your city and comparing that to the annual cost to rent you can see which is likely to make more sense in your location.
For example, in the city of Huntersville, NC the average list price of a 3 bedroom home in the range of 2100-2400 square feet over the past 6 months was $240,000. The average rental for a similar home over the past 6 months was $1500. If I multiply $1500 by 12 the annual rent is $18,000. Then by dividing $240,000 by $18,000 the price-to-rent ratio is 13. In general a price-to-rent ratio below 15 favors buyers, between 15 and 20 there is no clear winner and a price-to-rent ratio over 20 favors renters.
So, just by looking at the price-to-rent ratio for anyone in a position to buy in Huntersville it would make sense to move from renting to buying.
Ready to seriously consider a home purchase in the Lake Norman area? Pamela can get you prequalified today!