Our dig for that elusive bargain continues, with a curious twist: We’ve recently come across a nice home in a desirable area that’s being offered for sale and for rent at prices that seem at odds with each other.
If we were to buy this house — which, I might add, has minimal green space and a third bedroom in the basement — we’d be working with an asking price of $850,000. That price seems exorbitant, especially considering that comparable sales in the area are about $100,000 lower. But maybe the sellers are betting on their location, which is in a good school district and just a few blocks from the Metro.
Why, then, are they also offering the house for a much lower — if still out of reach for us — rent of $3,250 per month? Let’s say we bought the house with a 20 percent down payment and a 30-year mortgage at 6 percent. Our mortgage payments would be $4,077 per month. It doesn’t make much sense to buy. A 5 percent interest rate would bring our monthly payments to $3,650. Closer, but that’s still $4,800 per year more than renting — and doesn’t count things like insurance, property taxes, etc.
Or look at it this way: Let’s say our monthly payment is $3,200 — but we don’t rent, we own. At 5 percent, that means we could get a loan for $596,000. With that loan, and adding our 20 percent down payment, that leaves a final purchase price of … $745,000! Which is more than $100,000 less than the sale price of the house. (Changing the interest rate on the loan to 6 percent works out to a price of $667,500.) Another house we had our eye on recently came with a similar dissonant price tag: $688,000 for sale or $2,800 per month for rent. It was rented. (To finance 80 percent of that house at 5 percent, your monthly mortgage would be $2,954.)
I know, all of you homeowners are going to tell us about all of the tax benefits we would get from ownership, not to mention what a wonderful investment this property would be. But do you really think we’d be able to sell it in 10 years for more than the equivalent of $850,000? We’d rather pay rent and invest in something more stable — like, say, newspaper companies .