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Fiscal Responsibility on First Hill

By March 7, 2011

Everyone pretty much knows that renting is a losing investment compared to buying a home. But did you know that if you are currently renting on First Hill, then buying at the Decatur could actually save you thousands of dollars over five years purely on a net cash flow basis?

The Decatur

Realogics and Cobalt Mortgage have provided analysis (and an aggressive purchase package) to prove that buying a one or two bedroom at the Decatur will save you $14K and $20K respectively over 5 years. They examined the rent, expenses, and parking fees associated with comparable units in nearby apartment buildings that lease for $1241/mo (1 bd) and $1716/mo (2 bd). They factored in a 3% year-over-year rent increase, tallied the total cost over 5 years, and then pitted the numbers against their current purchase offer. A full breakdown of numbers and variables considered is included in the media release.

The Decatur is a steel and concrete high-rise building located on Spring and Boren that was converted from apartment buildings in 2006/2007. Now 80% sold, the current purchase package offers closing cost credits and a special 3.375% (4% APR) interest rate for the entire term of a 5 year ARM. It seems almost fiscally irresponsible for you not to consider taking advantage of current market conditions, especially if you are renting on First Hill.

Disclaimer: Realogics is an Urbnlivn advertiser.


Update (3/13):

I learned a lot in this blog post. As a writer, I learned a nearly foolproof formula for generating boo’s and hisses. It goes something like this: take a much discussed topic like “rent vs. buy”, sandwich it in-between a generalization and some marketing speak, and then watch the comments roll. For those commenters who were kind enough to leave constructive comments, thank you for the kick in the writing pants. This is not a lesson I aim to learn more than once :).

More interesting to readers, is the discussion which shows that “rent vs. buy” is a complex issue, and there’s no one answer that can be broadly applied to everyone in all market conditions. If you are reading this post and struggling to decide between renting on First Hill or buying at the Decatur, I’ve summarized some of the discussion, but you are encouraged to dig into the comments for further details, or join in with your own thoughts.

There were two main issues touched on in the comments:

Is the Decatur analysis complete?

In short, the general consensus is that the analysis does not present a complete enough picture.

Patrick is quick to point out that:

It’s very hard to do this kind of analysis correctly. Most people miss at least one or two important factors when they try to do a rent vs own calculation.

(and later) My point was that all of these assumptions can affect the analysis, and taking liberty with a couple parameters can easily skew it such that renting looks better than buying, or vice versa.

Mojo provides a good overview of what’s missing:

Sorry, but this analysis is flawed because it only captures a selective portion of the ownership costs. Most notably, no transaction costs associated with buying and selling appear to be included.

What is not included that should be?
-maintenance costs for the condo that would be the owner’s burden,
-transaction costs for buying
-transaction costs for selling
-and the opportunity cost on your down payment/transaction costs/maintenance costs (as you would not be paying these if you had rented)

Are the assumptions made in the analysis accurate?

Commenters disagreed on how accurate the assumptions made in the analysis really were – whether rent would increase and at what rate, whether interest rates would rise or decline, and even if housing prices would go up or down in 5 years time.

Patrick on rental rates:

They make the assumption that rental rates will increase 3% per year for the next 5 years. That’s not a safe assumption to make. They even claim that lease rates are expected to “skyrocket 30% over the next 5 years”.

A rebuttal from Guest:

You say “that’s not a safe assumption” when referencing a 3% annual bump in rent. To me 3% is actually conservative…turn to page 4 of Dupre + Scott Apartment Advisors’ new report. The Seattle Company says Puget Sound-area rents could climb almost 25% in the next five years and 50% between now and 2020.

EconE contributed his thoughts:

Rent won’t necessarily go up. If you’re a good tenant, a landlord will most often want to keep you rather than have an empty unit. All the more reason to rent from a private owner rather than a corporate complex.

But Phil thinks demand will push rental rates up:

Amazon is planning on hiring 1,900 more employees in Seattle, the jobs are already on their site. Russel is moving here, Nordstrom just leased more space from SAM. I like my low rent with no increases for a few years too, but reality is rearing it’s ugly head.

For the rest, I’ll refer you to the comments themselves. If you are a first time home buyer that is considering making a purchase with a 3.5% down payment and 5/1 ARM, you will find valuable discussion in there.