Homes: Rent vs. Own: The Sequel
2010-03-08 19:01 - Opinion
First off, plenty of people pointed out to me that I neglected to consider the value of the owned home, post mortgage completion. So I'll repeat the table, with an extra line for that. The resale price is based off of Manhattan Market Report 1996-2005 (find the link in that page). But of course, today we should all know that trusting the value of a home to appreciate (or even not depreciate!) can be very risky, so I included a zero-appreciation figure too.
| Renting | Owning | |
|---|---|---|
| Gross Income | $900,000 | $900,000 |
| Direct costs | $186,571 | $227,544 |
| Deductible costs | $0 | $101,214 |
| Tax Costs | $300,000 | $266,262 |
| Net Income | $413,429 | $304,980 |
| Resale income | $0 | $179,000 to $677,432 |
| Net Income, after resale | $413,429 | $483,980 to $982,412 |
Yes, everyone, that makes the picture much rosier for ownership. But that's out on the far edges of Brooklyn. What are the figures deep in the heart of the city? Well, I'll have to guess. I did my best selecting 15 representative sales and rentals of approximately the same type, size, quality, etc. But even my best here is rough, information is limited. That gives a median sale and monthly cost of $399,000 and $784 for owning, and a median monthly cost of $2473 for renting. Using the same numbers from my last post for interest and so on, that gives:
| Renting | Owning | |
|---|---|---|
| Gross Income | $900,000 | $900,000 |
| Direct costs | $542,812 | $533,845 |
| Deductible costs | $0 | $226,823 |
| Tax Costs | $300,000 | $224,392 |
| Net Income | $57,188 | $-85,060 |
| Resale income | $0 | $399,000 to $1,510,029 |
| Net Income, after resale | $57,188 | $313,940 to $1,452,219 |
Sheesh. Nearly break even, even if you throw away the house when you're done with it. And way better if you sell it, instead. And I know this income amount probably doesn't make as much sense with a two to three times higher home cost, but the specific number doesn't matter too much, what matters is how it goes up and down after considering the costs.
I'm not sure if renting is comparably worse in Manhattan, or if I didn't pick perfectly representative rentals vs. sales. Either way, factoring in the resale price, even if rent cost only half as much, owning might still come out on top.
I guess it's time for me to eat crow.
