In my local market, a house that would be about $2700/month in mortgage/insurance/taxes on a 30 year term after a huge downpayment would rent for about $2400/month right now.
There are some owners that in fact do count the equity, so they are willing to buy higher and be upside down compared to what a mortgage could be. The recognize the rent is only part of the income, that the property value going up is a potential gain to cash in that’s worth a few hundred a month to ‘deposit’.
Especially if the owners can pay cash and not incur the interest associated with a mortgage. It’s a bit of an odd choice right now as just letting the cash sit in a savings account offers competitive ROI with the current interest rates, but you’ve got a lot of property bought under previous conditions.
This only holds for relatively short term though, you’d expect rent hikes to go to $3000/month within a time period where that ownership monthly payment might only go up to $2800/month due to taxes and insurance rates. So 10 years into living somewhere you are now paying more to rent it than you would be if you had purchased comparable, even ignoring the equity part of the equation. If you include equity, then you better be planning to get out in 2 or 3 years at the most if you are embarking on renting, otherwise it’s much much better to buy even with higher mortgage payment, since you can cash in on the equity if you need to, eventually.
I’d say this is a relatively sane fiscal model of renting, that you need to give the renters a discount reflecting their lack of equity. I’m kind of glad to see rental rates being below mortgage rates in my area right now. That said, it wasn’t too long ago that rental rates in my area were higher than what mortgage could be, but large companies bought up housing stock and made it supremely difficult to actually buy as a private party. With the interest rates jacked up, those companies are cooling it a bit since they don’t have access to ‘free money’ anymore.
Actually, not necessarily.
In my local market, a house that would be about $2700/month in mortgage/insurance/taxes on a 30 year term after a huge downpayment would rent for about $2400/month right now.
There are some owners that in fact do count the equity, so they are willing to buy higher and be upside down compared to what a mortgage could be. The recognize the rent is only part of the income, that the property value going up is a potential gain to cash in that’s worth a few hundred a month to ‘deposit’.
Especially if the owners can pay cash and not incur the interest associated with a mortgage. It’s a bit of an odd choice right now as just letting the cash sit in a savings account offers competitive ROI with the current interest rates, but you’ve got a lot of property bought under previous conditions.
This only holds for relatively short term though, you’d expect rent hikes to go to $3000/month within a time period where that ownership monthly payment might only go up to $2800/month due to taxes and insurance rates. So 10 years into living somewhere you are now paying more to rent it than you would be if you had purchased comparable, even ignoring the equity part of the equation. If you include equity, then you better be planning to get out in 2 or 3 years at the most if you are embarking on renting, otherwise it’s much much better to buy even with higher mortgage payment, since you can cash in on the equity if you need to, eventually.
I’d say this is a relatively sane fiscal model of renting, that you need to give the renters a discount reflecting their lack of equity. I’m kind of glad to see rental rates being below mortgage rates in my area right now. That said, it wasn’t too long ago that rental rates in my area were higher than what mortgage could be, but large companies bought up housing stock and made it supremely difficult to actually buy as a private party. With the interest rates jacked up, those companies are cooling it a bit since they don’t have access to ‘free money’ anymore.