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Renting vs. buying: Here are some points to ponder

Given current market conditions, there really are no bargains, so it comes down to what a given individual wants — financially and personally. Here's what to consider in the buying vs. renting debate.

Given my position as founder and managing partner of MZ Capital Partners, a Northbrook, Illinois-based private equity real estate investment firm specializing in multifamily rental properties, my stance on the renting-versus-owning question is no doubt obvious.


That said, it’s an extremely nuanced situation.


Of course, I would love to see as many people rent as possible, as our firm deals in the multifamily sector. And given the price of houses these days, there is a great deal of merit to that argument.


But it really comes down to two things: What are your financial goals, and what are your life goals? Do you want to put down roots in a given area, or maintain the flexibility renting offers? Do you want to build up the equity homeownership offers, or are you leery of the various costs associated with buying (taxes, maintenance, etc.)? Is it important to you to be closer to an urban center, or do you prefer wide-open spaces? There are many factors to weigh.


Median prices for single-family homes, fueled by a recovering economy, favorable interest rates, and the fact that millennials are nearing their peak homebuying years, increased by a record 13.2 percent between May 2020 and May 2021. Rents over that same period also increased by 2.5 percent to a national average of $1,428 a month.


The result, according to a recent study conducted by realtor.com, is that it’s cheaper to buy than rent in only 15 of the 50 largest U.S. metropolitan areas:

  • Cleveland-Elyria, Ohio

  • Chicago-Naperville, Illinois

  • Pittsburgh, Pennsylvania

  • Riverside-San Bernardino, California

  • Miami-Fort Lauderdale, Florida

  • New Orleans-Metairie, Louisiana

  • Baltimore-Columbia, Maryland

  • Tampa-St. Petersburg, Florida

  • Hartford, Connecticut

  • Detroit-Warren, Michigan

  • St. Louis, Missouri

  • Philadelphia, Pennsylvania

  • Minneapolis-St. Paul, Minnesota

  • Louisville, Kentucky

  • Indianapolis-Carmel, Indiana

The caveat is that this study calculated monthly payments according to a 30-year mortgage and with the assumption of a 20 percent down payment — a calculation that resulted, for example, in an estimated monthly payment of $1,691 in Chicago-Naperville, compared to an estimated rent payment of $1,975.


But it is more and more difficult to assume that a prospect (especially a younger person) will be able to put 20 percent down.


Still, the costs associated with buying are food for thought, especially given how overheated the market is at present. The interest rate for a 30-year fixed mortgage stood at 2.802 percent as of late July, according to Zillow, and that, in combination with the other factors mentioned above, has made it a seller’s market in the extreme.


I’ve had friends who have offered over list price for a property, only to find that others have done the same. As a result, they have had to write what are called “love letters” to the seller, detailing why they’re the best buyer, and offering to waive inspection contingencies, etc.


One other cautionary note about buying in this day and age: While many people are paying the seller’s price (and above), lenders are more likely to finance the appraised value, meaning the buyer often has to pony up a greater down payment than anticipated.


But again, it’s an investment. If buyers feel confident they’re going to be in one place for years on end, they should go for it. They will likely reap the benefits down the line.


The only question anyone can’t really answer is whether over the next several years homes will continue to appreciate. Certainly, you would expect at some point that interest rates will inch back up and that prices will level off. But assuming that continued appreciation, yes, they are worthwhile investments.


Homes also offer greater security and privacy, but again, renting affords one flexibility. George Ratiu, a senior economist with realtor.com, was quoted on the website Managecasa.com saying that if you expect to move within five years or less, it makes more sense to rent, as homeownership costs are “significant.”


If, for example, you live in a professionally managed rental property, you don’t have to worry about buying a new refrigerator if the old one conks out; that will be taken care of. It’s all rolled into your monthly rent.


Something else to consider, going forward: A hybrid model has begun to emerge in the multifamily space, which finds companies like ours building suburban communities consisting of single-family rental homes. This trend, which began before the pandemic and has since accelerated, offers the best of all worlds — rental amenities and professional management, but also the privacy and security of a single-family home.


To reiterate, then: I’m not the most objective person when it comes to discussing renting vs. buying. At the same time, I can see the merits of both. Given current market conditions, there really are no bargains, so it comes down to what a given individual wants — financially and personally.


If buyers are seeking long-term investment and have the funds for a down payment, then homeownership is a great option. If flexibility is the goal, then by all means rent. There is truly no one-size-fits-all way of looking at this.


By Michael Zaransky

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