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Rent vs Own (basic question)
Old 06-30-2007, 01:16 PM   #1
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Rent vs Own (basic question)

I dont want to start a long debate regarding "rent vs own". I just have a simple question.

Im looking at a website listing rentals in S.Florida and Im seeing houses listed at like $644,000 that are renting for $3250 per month.

Why is the rent so low? If I paid that much for a house, wouldnt the mortgage be in the $6000 / month range (including taxes and insurance)?

PS..Im not saying that $3250 is low, but relatively to the price of the house it is.
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Old 06-30-2007, 01:23 PM   #2
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they probably bought the house at a lower price, i'd hope. my mom bought her house for $290kish 12 years ago, her neighborhood is now in the $700's...so she could rent it cheaper than someone who recently bought it.
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Old 06-30-2007, 01:45 PM   #3
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Originally Posted by utrecht View Post
I dont want to start a long debate regarding "rent vs own". I just have a simple question.

Im looking at a website listing rentals in S.Florida and Im seeing houses listed at like $644,000 that are renting for $3250 per month.

Why is the rent so low? If I paid that much for a house, wouldnt the mortgage be in the $6000 / month range (including taxes and insurance)?

PS..Im not saying that $3250 is low, but relatively to the price of the house it is.
That's what the market will bear. In places such as Florida and California, housing prices often more than doubled between 2000 and 2005/6. Rents went up by only a few percent per year.

As such, in these regions, rents can be 50% or less of total carrying costs of a purchase.

There's nothing quite like a housing bubble...
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Old 06-30-2007, 01:48 PM   #4
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Because market rent is what the market will pay. It has nothing to do with what a person paid for a property. They're counting on appreciation. My home in CA is worth over $600,000 and would rent for under $2,000 a month but it has paid me in equity an average of over $2000 a month each and every month since 1986. I can reasonably expect an average appreciation of $5,000 a month now.

Some people with deep pockets buy property here and never rent them but hold them only for appreciation. One of the San Francisco Supervisors is in trouble because he used a property held this way as his personal residence to get elected in that district although he actually seems to live in another county.

You should have some rationale why you think this appreciation will continue. SF and Honolulu are limited in area for future growth and should remain attractive to newcomers. I have no idea what S. Florida's historical appreciation has been or expectations are but if I was investing there that is the first thing I would want to know.
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Old 06-30-2007, 02:10 PM   #5
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There is also a glut of houses for sale in Florida .Many investors got caught right before the market dropped and are now trying to rent their property .
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Old 06-30-2007, 02:14 PM   #6
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Originally Posted by utrecht View Post
I dont want to start a long debate regarding "rent vs own". I just have a simple question.

Im looking at a website listing rentals in S.Florida and Im seeing houses listed at like $644,000 that are renting for $3250 per month.

Why is the rent so low? If I paid that much for a house, wouldnt the mortgage be in the $6000 / month range (including taxes and insurance)?

PS..Im not saying that $3250 is low, but relatively to the price of the house it is.
Some areas are high cost areas and, as people have pointed out, are rented out to defer carrying cost while they wait for prices to go up. Real estate and trees don't grow to the sky but sometimes it works.

Seattle is really hot now but back in the late 60's my dad, my brother and I fed the family by cutting grass on forclosures. We couldn't keep up with the business in our little corner of the Seattle area and we were doing 6 to 8 yards a day.

In addition to the places pointed out already, almost all recreational areas see the same imbalance between the rent price and the cost to own. I love fishing on Cape Cod and looked into the price of a humble bungalow. That was a shocker. I can rent for the rest of my lifetime for less than a year's payments.

It seems that there are a lot of properties where the owners use them for several weeks or a month each summer. Some people don't go at all for various reasons. They are rentals the rest of the year which is actually only the summer moonths because people will pay you to stay in their houses over the winter on Cape Cod.
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Old 06-30-2007, 02:22 PM   #7
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Rents are tied to wages with have bearly risen with inflation .... home prices - of late - have been tied to liquidity which has run amock (just look at the subprime mess). Not to worry; things will settle and home prices will come more inline with rents.
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Old 06-30-2007, 02:26 PM   #8
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Look at the renters. They include many FIREees! LBYM people who look for a bargain. Would YOU pay more than $3250 per month?
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Renting and buying
Old 06-30-2007, 03:40 PM   #9
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Renting and buying

Rents in these areas rise faster than incomes long term. How is that possible? Desirable areas attract those who can afford more and repel those who can't, acting as a sorter for income and wealth. Renting is always cheaper than owning initially, but renting becomes more expensive eventually. Currently, that is probably around 15 years, with breakeven pushing 30 years, which is very high. Prices are too high and will decline, and there will be better times to buy in the future, but for the very long term investor, it can still make sense. Only a few years ago, it was probably around 8 years, with breakeven at 15 years, which was very low for these areas, but still more owning than renting initially.
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Old 06-30-2007, 04:10 PM   #10
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Rents in these areas rise faster than incomes long term.
Excellent point.Where I live there are always droves of young people with quality job skills moving in, from all over the US and inded from all over the world. Long term, one would want to buy except as a lifestyle decision.

Ha
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