We're finding it difficult to broach this subject without invoking a stupid cliche, so we're just going to embrace it- over the course of the last 4-5 years, the American Dream has, for many, become the American Nightmare. We speak, of course, of becoming a home owner. Buying a house used to be considered a sound investment and cornerstone of one's personal financial planning. One need only look at the race to build new apartments and the insanely tight single family housing rental market to see how perceptions have changed. In acknowledgement of a nation's new-found love for renting, today we examine comparable housing opportunities** in one of Atlanta's more resilient sub-markets (and great town/neighborhood)- Decatur. Both houses are 3 bed, 2 bath; were built in the 1920's; have roughly 1,500 square feet of living space and have been updated. While the rental house is closer to downtown Decatur, we'd argue that this proximity to town is matched in value by the for-sale listing's quieter location near several parks.
120 Ponce De Leon Court, Decatur | For rent: $2,195 per month
One of the best things about renting is the predictability of one's expenses. Aside from renter's insurance and utilities, a monthly rent number is all-encompassing. Flexibility is at a maximum with a one-year lease (short of month-to-month arrangements, which are very rare for single family abodes). And one can count on never losing a weekend to a pesky home repair or improvement project- those are the landlord's responsibility. All told, hard to see the downside here. Decatur location, schools and community and a comfortable, updated house. Tough to beat.
444 Melrose Ave Decatur | For sale: $350,000
With the easy-mortgage days behind us, even beginning to consider the buy option here is going to require having roughly $70,000 for a down payment (i.e. 20% of $350,000...5% or 10% down payments are pretty much history as well). One is also going to need verifiable income, the level of which varies based on your personal debt-to-income ratio. With mortgage rates at historic lows, one could feasibly get a rate of less than 4% on a 30-year fixed rate loan...the mortgage calculator we're using just spat out a monthly payment of $1,111 per month on a rate of 3.75%. Based on tax information provided in the listing and a casual estimate of the cost of homeowner's insurance, we'd add an additional $525 per month, bring the total monthly nut to $1,636.
Buy runs away with it, yes? Not so fast. What about repairs and maintenance? Many folks work on the assumption that these costs will amount to 1% of the home's value annually. So adding $3,500 to the yearly tally, this takes us to a $1,927.67 monthly cost to own this house.
Clearly there are benefits to buying, especially when one considers the mortgage interest deduction and (hopefully) a return to reasonable appreciation over time. But we think it important to consider flexibility. Particularly for younger folks in the work force, this is an infinitely more mobile job market. A job that seems stable in Atlanta could easily move to Charlotte. Or disappear all together, forcing one to open one's self to job opportunities outside of Atlanta. With the home seller responsible for a cost of sale often hitting 6%, there's a potential equity sacrifice of $21,000 assuming values remain flat over a short-term hold of the property.
SO. Rent versus Buy- what wins? We'd have to call it a toss-up. If you're supremely confident in your Atlanta residency for the next 5-10 years and that the house will meet your needs for that period, you should probably buy. But anything short of that, well, let's just say an extra $268 per month is a small price to pay for flexibility. And to keep $70,000 safe in your savings or investment account.
**We would note that we are not financial planners or accountants. The numbers included herein are admittedly loose.