Friday Night Fights Vol 3. - Condo Renting vs. Owning

In this edition of our "Friday Night Fights" - OK, I know it's Saturday, cut some slack (!) - instead of looking at properties, let's pit renting against owning in the current environment, specifically looking at small to mid-size condos and their brethren, the apartment, since I'd argue these tend to be the types of units one compares when making the decision to rent vs. buy.

By "current environment", we mean one that has certainly seen real estate prices drop (although as we've seen, it could be argued that nicer LA neighborhoods still have further to fall), but have also seen rents contract given the economic climate.

Remember one of our themes here is the rental price vs. cost of ownership comparison/discrepancy. How do those numbers look these days?

THE CHAMPION
Renting

We'll call renting the "champion" because those who rented over the past few years are probably feeling pretty good about themselves (some would say smug) for not having stepped up to purchase a property in the 2006-2007 timeframe.

A very quick and unscientific check of Craigslist (which, of course, has its own drawbacks) yields the following general rental prices in the WeHo area:

1BRs - two distinct types of listings here. Your "basic" 1BRs seem to be renting in the $1400-1700/mo range. There are some listings for "high-end" 1BRs in the $2800-3500/mo range.

2BRs - tend to cluster in the $1800 - 2500/mo range, with a few higher-end listings around $3500-4000/mo.


THE CHALLENGER
Owning

Data from Redfin reveals the following:

1BRs - Average price for 1BRs on the market = $459,000

2BRs - Average price = $750,000

Instead of guessing as to current lending parameters, I headed over to Bankrate.com for a check on the current market.

With 20% down, you'd be looking at a rate of approximately 5.50%. Assuming $300 in HOA dues/mo, monthly pre-tax payments (PITI) look something like this:

1BR: $2800/mo
2BR: $4500/mo

Of course, post-tax numbers will be less and vary depending on situation, but you have to also factor in the opportunity cost of between $92,000 and $150,000 in down payment, in an environment where I'd argue the probability of the return on that money, in the capital markets, will be higher than 5.5%.

Depending on your view, the rent/own cost ratio is either slightly or significantly out of whack currently.