Forbes put out a piece with a slide show of the best and worst places to rent an apartment; my question is wouldn’t you want to own an apartment building investment in one of the top 10 cities? How about in any of the other cities listed?
One of the factors they used was the cost of renting vs. owning but the ownership cost is lowballed because it only includes the house payment (mortgage, taxes, insurance), ignoring the true cost which also includes maintenance, repairs and reserves for capital improvements… not to mention coming up with 20% down payment and qualifying for a loan. Even still renting comes out looking pretty good in those places.
Then in a WSJ piece in their Smart Money section there’s this: “On the national level, it is cheaper to buy than rent, according to a March 2012 report by Deutsche Bank – even after taking into account the down payment and property taxes. But in some areas, including California and the Northeast, renting remains more affordable than buying. The report identified 13 cities where renting costs less than the after-tax mortgage payment (that’s the mortgage expenses the owner incurs, along with the mortgage interest deduction they get come tax season).”
Once again ignoring the true cost of owning which includes keeping the place up, yardwork, painting plus fixing things that break like appliances, furnaces, hot water tanks, and setting aside something for things that wear out like the roof and the driveway. They list five markets where even lowballing the cost of owning it is still cheaper to rent:
- Northern NJ
- Long Island, NY
In my hometown of Seattle they picked some interesting neighborhoods for examples but found on average that even without factoring in repairs, maintenance and capital improvements renting averaged $377 per month less than owning.
Net, net renting is a better deal in many places even if you could afford the downpayment and qualify for a loan.
10 thoughts on “Top 10 best and worst places to rent an apartment/ Top 10 worst and best places to own #multifamily?”
There is all these rumors going around about real estate and business opportunities near the commuter real on Morton Street in Dorchester, MA. Apparently “Yuppies” and “hippies” are moving into the area. It’s been compared to the gentrification of Brooklyn in the 90s. Whatever that means. Interestingly enough though the City invested in extending the commuter train line and fixing route 203 that runs through Morton street, including taking down the bridge and re-engineering the entire and route and reconnecting the Emerald Necklace. The City is also redeveloping the area near Morton Street and will soon RFP (request for proposal) to bring business to the area. There area also many beautiful Victorian homes in the area is very close to Boston proper. My friend is telling me that we should invest in starting a business for all of the above reason. And this area has been traditionally overlooked and you can still start a business there with lower capital than other prime areas in Boston. I am not convince that all the rumors in the little information we have is sufficient reason to jump in. Does anyone recommend resources we can use to better research to better inform ourselves as to whether this would be a good investment opportunity. Thank you.
John I would start with your local planning and land use department, in Dorchester I believe it’s the Boston Redevelopment Authority. Check with them to find out what’s really in the works: http://www.bostonredevelopmentauthority.org/Planning/PlanningInits.asp
What an interesting article! But, is it easy to do that? owning and maintaining an apartment is definitely hard these day so I guess before venturing in that kind of responsibility make sure to know the things that you have to know.
Charlotte, there are two keys to successful apartment ownership, the first is buying the property ‘right.’ The second is hiring a professional property manager who is compensated by a percent of rents collected. That means that part of the first key is to make sure there is room in the budget for the second key.
Are housing prices and apartment rent growth correlated? CBRE Econometrics has a report just out showing that they are to a certain extent, but they say while one influences the other the authors don’t claim causality; that changes in one won’t directly cause changes in the other. The report has a nice chart showing real (inflation adjusted) house prices in the US are returning to their long term trend and while some a calling a bottom in housing, markets tend to overshoot the trend when correcting so I’m not sure prices have bottomed yet. Note you may have to register to access this report.
Interesting read. Up in Ottawa buying is cheaper than renting. The list makes sense when I look at places like California and Honolulu
Ray I’m always curious when it is said that ‘buying is cheaper than renting’ because the numbers behind that comparison come in at least three flavors: The mortgage payment is less than monthly rent, or, the house payment (mortgage payment plus taxes and insurance) is less than renting and finally the most realistic one: The cost of buying, owning and operating a home is less than renting.
This takes into consideration all of the above plus the cost of all utilities including those usually paid for by the landlord plus the cost of repairing and maintaining the home and property plus a realistic amount set aside every month for the replacement of major items such as appliances, furnace/air conditioner, sewer and water lines, roof, siding, repainting, driveway etc. Typically apartment owners set aside $200-450 per month per unit for these costs. Even this ignores the value of the time it takes to plan, manage and perform all these tasks. It also presumes that the average person can accumulate the necessary down payment and qualify for financing too.
The cost of buying, owning and operating a home is pretty much the same as with an apartment building and to see how we evaluate the purchase of an apartment based on the realistic cost of owning it see our Dealizer page.
Great to know the facts about investing money on apartments on best and worst places. As it is mentioned in the blog, its important to rent your apartments in profit making places like Seattle..
Interesting article and great slideshow from Forbes. They should make the same statistic about places to rent in Europe.
It’s all the difficult to find a great renting business. When you find it, bank follow you… or not.