The blue, three-story townhouses are located directly across the street from one another in the River Colony section of Piney Orchard, just a few hundred yards from Piney Orchard Elementary School.
On one side of the street, the home at 2711 Middle Neck Road currently is for sale for $229,000. Across from it, 2714 Middle Neck Road recently rented for $1,795 per month.
So which home offers the better value?
By nearly any measure, it’s the home that’s for sale.
Both properties feature colonial architecture, three bedrooms, two-and-a-half bathrooms, a storage building and a fenced-in yard. The properties have almost identical floor plans and were built within a year of one another.
But the biggest difference is the demand for the two properties. While the for-sale home has been on the market since last July, the rental property recently was snapped up in only 14 days.
Ask almost anyone who’s moved to the area over the last three years and they’ll tell you that the rental market here is searing hot. The cost of renting residential property in greater Odenton has increased by 25 percent or more during that time, while the price of purchasing those same residential units has dropped by nearly the same amount.
From a financial perspective, direct comparison of the two Middle Neck Road properties clearly illustrates this trend. While the rental townhouse will cost the tenant $1,795 per month, today’s rock bottom sale prices and historically low interest rates mean that the Middle Neck home for sale can be had for $410 per month less than the rental. And perhaps even less than that.
Numbers provided by Primary Residential Mortgage (PRM) of Millersville show that a conventional loan with five percent down and no mortgage insurance will result in a monthly principal, interest, taxes and insurance (PITI) payment of $1,385 for 2711 Middle Neck Road. Moreover, the interest rate on the loan is 4.125 percent, a number that PRM Mortgage Officer Greg Carll says is conservative, and probably can be lowered for many buyers.
“Although the mortgage industry has experienced significant and much-needed reform, there are still some fantastic financing options available for well-qualified buyers,” Carll said. “It’s paramount that you walk through the homebuying process with someone you can trust and will take the time to explain your options to you.
For buyers of 2711 Middle Neck who prefer a lower down payment, Carll says PRM can offer a 30-year fixed FHA loan, requiring a 3.5 percent down payment ($8,015), yielding a monthly PITI payment of $1,621. The 3.875 percent interest rate on this loan also is a conservative figure, Carll noted, and might be lowered for many buyers.
Of course, as most homeowners know, the effective amount of these mortgage payments can be even lower, given that most homeowners can deduct the cost of mortgage interest and property taxes from their annual income tax bills.
Plus, it’s important to remember that rental tenants never see their rent money again, while homeowners making monthly mortgage payments continue to build equity in their properties—notwithstanding the loss of equity that can occur when housing markets tumble, as they have in recent years.
The sum of these factors means that in the current Piney Orchard housing market, buying a home similar to the Middle Neck Road properties makes much more financial sense than renting. While the level of savings may not be as dramatic in every case or in every section of Odenton, a firm trend of increased value for local homebuyers has been established and should stay in place for a while.
For more information on the advantages of buying vs. renting residential properties, contact Greg Carll of Primary Residential Mortgage (410) 215-4163 or Jerry Kline of Keller Williams Flagship Realty.
Jerry Kline is a Realtor with the Odenton, Md., office of Keller Williams Flagship Realty (1216 Annapolis Rd., Odenton.) For more information on the local real estate market, contact him at (443) 924-7418, or visit his blog (www.JerryKlineRealtor.wordpress.com) or website (www.JerryKline.kwrealty.com).
The bottom line is that you could actually sell that house at 10% less than you paid for it and still come out on top. If you rent the same house for the same time period you just threw away $108,000.
There's a domino effect here. -Renting cheaper than buying -Money saved when renting allows for growth of savings, to be put toward down payment -Larger down payment allows for smaller loan, possible lower rate. No mortgage insurance, etc. More money saved. -Time spent renting allows people to be more comfortable in buying decision. (They buy when they are totally ready financially and emotionally.) -Being comfortable=less likely to want to move. -Being not likely to move means no reason to panic when home value drops. (You're living there, not selling. So why sweat it?)
We moved into our street 5 years ago and were the only renters. Now most rent since the owners can't sell. 5 years ago anyone could get a loan - especially on townhomes on our street that sold for 400K+. Now try to get a loan for 400K+ and let the nightmare ensue.
I am currently renting in PO and I would take paying rent over buying a home any day.
Getting a 400k loan is just as easy now as it was 5 years ago if you pay your bills on time and have the income to support that size loan. Five years ago people were getting loans that they could not afford and didnt really . People were buying homes they had no business buying. People forgot the old rule of thumb so that they could buy "THAT BIG HOUSE". You know, the one they could not really afford. Rule of thumb : Mortgage no bigger that three times you income. If people had lived by that rule there would not have been the bubble in real estate. People would not have been upside down in their homes. Renting may be a good move in some situations, but in most, buying is the way to go. You cant build wealth if you dont own appreciating assets. It is simple accounting. Most people are taught the wrong way to buy homes and the wrong way to pay down Mortgages. I would encourage anyone with a five year horizon or more to seriously consider purchasing a home. If you were ready to spend the $1800 a month in rent, go ahead and buy the home for the $1400 a month and take the extra $400 a month savings and apply it to your principle of your mortgage each month. As said above you will, at the end of 5 years, build up at least $24k in equity.
You paid for them you just didnt realize it. Part of your rent should have been set aside by the owner to cover those repairs. So that $150 month ($9000) for that last five years more than paid for those repairs. (Assuming $1500 month rent) BTW if you cant put that 10% away then you bought too much house.
800 x 60months = 48k sounds like a break even to me. 400k price of home - down payment of 80k = 320k - 48k you could have put on the principle from the lower housing cost - 28k you paid principle down with your normal loan payment = 244k left on the mortgage. Oh did I forget to mention the 70k in interest you got to write off your taxes over the last five years. It still sounds like a break even situation even with the correction of housing prices. The house should sell all day long @240k BTW I am not bashing the decision you made for you and your family. I know all our situations are different. I was just trying to show you even with people buying at the high of the market, they still could be in a better position now than they were 5 years earlier, by purchasing a home.
...pause for corny joke.....but I did stay at a Holiday Inn last night. :-)
Referencing your other comments - I'm not at all bitter. Far from it, Very, very happy and that actually seems (oddly) to make you bitter. Put down the real estate Kool Aid. There are a lot of times when renting is a better decision to buying. Long term? Always buy.
You had a nice place to live for 5 years! That is "something." You also have the $$ that you saved while you did not pay for maintenance! My point is that each option has its pros and cons; and those pros and cons are different depending on one's circumstances. There is no black and white / right or wrong answer. The right option is what works for YOU and your situation. =^..^=
Thank you for the feedback. It's especially interesting to read your comments, since you own the rental property profiled in the story. Owning residential real estate obviously does not make sense for everyone. But in your case, I suspect it's quite satisfying to have someone else (your tenant) paying most of the mortgage payment for your Middle Neck Rd. home. And congratulations . . . . you're already nine years into that mortgage! Given the state of the current local rental market, scores of savvy investors like you are making out very well financially with their Piney Orchard investment properties.
I definitely follow your logic.
If all you get from renting out is enough to cover your mortgage - you make zero. It's like putting money in a shoe box.
For example let just say the price of the home over the next 10 years stays the same. ( not likely) The mortgage at that time will be approx 90k so at a minimum they will have 135k of equity there. again sounds like a no brainer to me. Sounds savvy to me. Where else in today's economic climate will you find this kind of return. Especially since someone else is paying the mortgage for them. (The renter) Why would someone pay more to rent the same place they could buy for less monthly payment? Even if after 5 years you sell the house for what you paid for it, you are ahead of the game. At a minimum you paid less to live there and you got to take the tax write off for your mortgage interest. There are certainly some situations that warrant renting but if you can afford to buy, it makes $ince to do it.
If you bought at house at 250K and 8 years later put it on the market for $260K but no one buys it, how much did they make? You might just want to talk to a friend of mine who bought a single family home for $310,000. He had to sell over a year ago but it's now worth $280,000. And that would be great...except it's still not sold. This may come as a complete shock to you (I know) but millions of people in this country have lost value on their homes that they'll never recover. If you pay $200K for something that ends up being worth $150K, then....we'll you do the math.
In Anne Arundel county in Jan 2002 the median Price of a home was $169,950. Ten years later in Jan 2012 the median price of a home is $275,000. Sounds like an increase to me. My source is Maryland Association of Realtors. If you bought a house at 310k and havent sold it yet then you havent lost anything. If you are still living there, you are paying the mortgage. If I have to pay a mortgage I would choose to pay mine not someone elses. To answer your question "If you bought at house at 250K and 8 years later put it on the market for $260K but no one buys it, how much did they make? " ....they made nothing and they lost nothing. But they are worth the perceived value of the home minus the debt owed. This may be a shock to you...millions of people bought their homes wrong or bought homes they could NOT afford. Now they are paying the piper for their bad decision. House is a safe investment when bought properly. People need ot live somewhere.
Yours is an excellent question. Here's a response from Greg Carll of Primary Residential Mortgage, the lender quoted in the story: "As a correspondent lender, PRM has access to the product portfolios of 10 different mortgage investors. One of the programs we can offer is a 5 percent down conventional loan where the monthly mortgage insurance (PMI) is eliminated one of two ways. It can be paid for with a single premium, one-time buy out due at closing. Or, it can be paid for by the lender by increasing the interest rate about 0.25 percent. The expense of these options depends entirely on the borrower’s credit score. For buyers with excellent credit and available cash for the home buying process, this loan program represents a fantastic alternative to an FHA loan. As always, anyone looking to purchase a home should contact their lender and determine which loan program is the right choice for their unique situation."