Reply to Is the delta between renting & owning now so high that it really just makes sense to rent?

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[quote=Anonymous]I stumbled upon this Reddit post that compares the cost of renting in the Silicon Valley area compared to buying a similar property and it really got me thinking about whether we have the same issue here in the DC area: https://www.reddit.com/r/HENRYfinance/comments/1chr26o/vhcol_its_a_nobrainer_to_rent_compared_to_buying/

The salient part of the post:

[quote][i]
Let me illustrate with a very specific example.

In Cupertino, this 2000+ sq ft luxury home is on the rental market for $6k per month.

https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849_zpid/?utm_campaign=iosappmessage&utm_medium=referral&utm_source=txtshare

Look at the homes nearby which sold recently

A comparable, actually slightly smaller, home one block away, recently sold for $3.45M. Several other houses in this block have also sold for more than $3M

https://redf.in/CJpbxA

So, the data shows that your $6k rental is valued at $3.5M if you want to buy it instead of renting it. What’s the cost of ownership of buying a $3.5M home?

You need to put down at least $700k (20%). That’s 700k worth of liquidity which you lose and cannot invest. Apart from the potential investment gains, just think of the peace of mind that comes from knowing you have $700k available liquid.

At 7% interest rate, the monthly mortgage payment for a $2.8M loan is $18.6k. Add in property tax at $3.5k per month. Your monthly carrying cost (PITI) is $22k. That does not include money required for maintenance.

So, rent it for $6k per month

Buy it by locking up your $700k, and committing to pay $22k per month[/i][/quote]

Now, I'm willing to admit that with the extreme values in California this line of reasoning makes sense. But are we starting to get to that point even in places like Cleveland Park, CCMD, Bethesda, or Arlington?

California is a bit weird in that so much of the housing was built immediately post-WW2 that you don't have a lot of variation in housing, whereas here we have a greater mix of housing styles. In much of California, its mostly all the same stucco one-story 1800-2200 sq ft boxes. Further, the property tax is locked in so you get these weird affects where something can rent for much cheaper than a monthly PITI of a recent purchase.

But is the same affect happening here? Are SFH rentals in desirable areas diverging substantially from the PITI with 20% down?

If we ever had to relocate for work, I'm thinking we would probably just keep our DC house @ 2.75% as a rental and then rent in a new location. It's almost guaranteed to have a sizable delta between rent and PITI. [/quote]

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