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In Piney Orchard, Buying Much Cheaper Than Renting

A tale of two townhouses shows you can rent for $1,795 per month or buy for $1,385 per month.

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).

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

John May 07, 2012 at 12:18 PM
I guess we're not going to address my sub-division in PO where almost everyone is buried by at least $50,000. I know four owners just on my street that are losing from $500 to $800 per month by renting out just so their homes won't go into foreclosure.
Jerry Kline May 07, 2012 at 02:06 PM
John, Thanks for the feedback. Of course the situation you describe is a terrible problem for many in this area. There are no easy answers for homeowners who are underwater and trying to stave off foreclosure. I encourage you and the owners in your subdivision to contact a good realtor to explore different options, including a short sale. When compared to a foreclosure, a short sale is the lesser of two evils. But it can provide needed financial relief for many. Email me if you'd like to discuss the specifics of the current real estate climate in your Piney Orchard neighborhood.
John May 07, 2012 at 03:13 PM
Just remember, if you're under water you're not building equity, but throwing money into a black hole - and you have to maintain your house - and your credit's still trashed if you fall behind on payments. Owning is great....under certain circumstances. Gone are the days where you'd be smart to buy a house if you plan on moving within 5. Far, far better off renting.
Brian C. May 07, 2012 at 03:53 PM
Buying a house is a far better option than renting. When renting, as in the example above, you are just throwing your money into a black hole.(paying someone else's mortgage). If you have a five year horizon it still are better off buying instead of renting. The key is not paying to much when you buy. The other key is to manage your mortgage properly. Using the example above, if you had bought the house with a 5 year horizon and took the difference of the rent and mortgage, you would pay an additional $24,000 on the principle of your mortgage. Doing this builds a minimum of 10% equity even before you account for your normal mortgage payments. On top of that you get the pride of home ownership and likely a healthy tax break. 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.
Sandy May 07, 2012 at 04:40 PM
This is a shame, because it is always helpful when renting is cheaper than buying. 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?)
Chris Jobe May 08, 2012 at 11:07 AM
I rent here in Piney Orchard myself. The reason I have not bought in this area is I work for the government and will not be staying in this area more then 2/4 years tops. The townhome I rent is nice and I honestly have no complaints of the area but I do know that most people in my area do rent as well. Its what happens with a transient location like this where you have such a large government population that may only be in the area for a year or two. I will say that spending $26,400 a year on rent is far from ideal but the thought of being stuck with a home that I cant get out from under is far more scary to me and my family.
John May 08, 2012 at 02:44 PM
It wouldn't matter. Almost all home loans are loaded with interest on the front. So if you buy knowing that you're leaving within 5 years, you're basically just renting from the bank - making 100% interest payments. Then you go to sell only to find there's no buyers and you're stuck. We're leaving the state next year and I'm happy to have made the decision to rent. If not, I'd already be stressed about how I'd sell this place. My landlord tried to sell it...twice. No bites. You're also likely not making a profit after just 5 years after closing and real estate fees. Those days are gone. 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.
Peg Waters May 08, 2012 at 03:27 PM
You left out an important part - most renters get the amenities that are part of the property (i.e., the pools, fitness center). If you own, you have to add those multiple HOA fees on top of your payment, which could easily go up over the dollar amounts above. I am currently renting in PO and I would take paying rent over buying a home any day.
John May 08, 2012 at 03:59 PM
Yet another point - no maintenance. Don't get me wrong - absolutely positively buy if you plan on living someplace long term. But short term? Rent. We've needed a few things fixed since we moved in but as renters, don't have to pay to fix them.
Brian C. May 08, 2012 at 05:51 PM
Wow John you seem a little bitter. So once you are finished renting for the five years what do you have? "Nothing" is the answer. After five years of home ownership you have an aprreciating asset in most cases. 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.
Brian C. May 08, 2012 at 05:55 PM
Those amenities are paid for by the owner. So as the renter you are paying for it in your rent payment you just dont know it.
Brian C. May 08, 2012 at 06:04 PM
Again if you put aside 10% of your mortgage aside each month, you will have the money to pay for those repairs when they come up. It is all about learning how to manage your money. When you rent you have to call your landlord to come fix it. What is the difference in calling the plumber, electrician, and handyman? 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.
John May 08, 2012 at 06:27 PM
I'm saving over $800 per month by renting over if I bought this place - and when we leave next year, we simply pick up and go. If we would have bought the place we're renting, we'd be completely screwed. Best decision we ever made.
Brian C. May 08, 2012 at 07:39 PM
You made my point for me. You leave with nothing. Had you bought the house at the right price instead of what it appears a lot of your neighbors did. You could leave having a performing asset. When you leave you could rent out your asset. As you pay down the debt on that asset ( w/ the collected rent) your net worth continues to grow. As you sit now, when you leave next year you net worth is still the same or at best $48k better. 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.
Brian C. May 08, 2012 at 07:41 PM
BTW I am not a Real estate agent/broker or mortgage broker/agent of any kind. ...pause for corny joke.....but I did stay at a Holiday Inn last night. :-)
John May 08, 2012 at 08:19 PM
To put it in the most simple of terms, when I know for a fact that I'm leaving (as we did when we moved here - knew we were leaving in 5 years when our son got out of elementary school) we didn't want to hassle of having to sell a house. The economy has also been a real hit since I'm self-employed and with renting, if I took a huge income hit we would have simply moved out and rented a much cheaper place. Not to easy to just up and sell your house when times are tough. Every situation is different. 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.
Calique May 08, 2012 at 09:01 PM
I would just like to point out that after renting for 5 years, you don't leave with "nothing." 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. =^..^=
MWD May 08, 2012 at 09:44 PM
My husband and I own the property you're speaking of - 2714 Middle Neck Road. We lived there for less than a year back in 2003, and it's been rented for nine years. Out of those nine years...I think it's only been vacant for one month, and we've only had three tenants. You're right, the rental market in Piney Orchard is searing hot. HOWEVER!!...we bought it in 2003 and paid around $223,000. And right now, like you said, the exact model directly across the street can't even sell for $229,000. This does not bother us because we don't ever plan on selling...but still...it's frustrating to think about. Over the years we've met a lot of people in the neighborhood who were just passing thru...only staying a few years. The ones who rented were far better off! Our friends who owned homes and had to move out of the area are now landlords. So I don't think you can make a broad statement like, "It's better to own than rent." Everyone's situation is different. If you want your "forever" home to be a back-to-back townhome in Piney Orchard, definitely buy. But if you know that you will only be living there for a short time, renting is the way to go, in my opinion.
MWD May 08, 2012 at 09:49 PM
In 2007 townhomes in Settlers View were selling for almost $440,000. NOW...one is going to closing next month for $332,000. Ouch!
Ryan Stavely May 08, 2012 at 10:32 PM
True, but the numbers quoted in the story have the HoA fees baked into the rent. They're not a part of the PITI numbers, so if you take them into account the difference in monthly payments gets bigger.
Jerry Kline May 08, 2012 at 10:33 PM
MWD, 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.
Jerry Kline May 08, 2012 at 11:58 PM
Mr. Stavely is quite correct. The requisite H.O.A. and related fees for the for-sale home were not included in the original story. Allow me to add a very accurate estimate of those amounts here. P.O.C.A. annual assessment: $432. P.O. annual Front Foot benefit: $325. Annual H.O.A. fee for River Colony (which, by the way, includes grass-cutting): $696. Together, these amounts total $1,453 per year. Divide this by 12 (months) and you're left with an additional monthly payment of $121. Reasonable, but not insignificant.
Tim Lemke (Editor) May 09, 2012 at 03:18 AM
Jerry - in the case above from PRM, you theorize about a conventional loan with 5 percent down and no mortgage insurance. I had a reader ask if this is common. I always thought anything less than 20% down would require PMI.
Brian C. May 09, 2012 at 11:48 AM
but John, the Kool Aid is red flavored and is soooo good. :-) I definitely follow your logic.
John May 09, 2012 at 01:07 PM
Good Lord Jerry - now I have to tell you to put the Kool Aid down. Lol. Savvy investors? This is NO disrespect to the owners of that house at all, but I'd hardly call a savvy investment something that hasn't gone up in value for 9 years...or something that's not liquid. If they tried to sell that house, it might not sell for years. 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.
Brian C. May 09, 2012 at 01:47 PM
@John The math says that it was a great investment. 223k - 44k ( 20% down) = 179k mortgage. Now after 9 years of paying on the mortgage they owe approx 150k. on a property that will sell all day long at 200k. Simple math tells me they are liquid to the amount of at least 50k. If the house sold for 225k they would have at least 75k sounds good to me. Again they have an appreciating asset not just an empty 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.
John May 09, 2012 at 02:01 PM
All homes are appreciating assets? I'd Google around the news if I were you. Question: If someone buys a home at $300K and it's now worth $250K, how much did they make? 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.
Brian C. May 09, 2012 at 03:43 PM
Ok I guess we can spin numbers any way we want to. So I will. ALL homes are not appreciating assets. Most homes are. Historical data shows that. 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.
Jerry Kline May 09, 2012 at 09:57 PM
Tim, 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."

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