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The Real Estate Adviser

Buy or rent? It's a dollars-and-sense matter

Dear Steve:
My son received a fellowship to college in Baltimore, and he and my daughter-in-law and their two kids will be moving there in June for two years. They bought their present house in Massachusetts, for $165,000 and their real estate agent advised them to put it on the market in March "in the mid-$200,000 range." They are undecided as to whether it would be more advantageous for them to rent or purchase while they are in Baltimore. Your advice would be very much appreciated.
Father of the Fellow

Dear Father:
Congratulations to your fine Fellow and his flock.

Although you don't supply quite enough financial details to make a thorough analysis on his rent-or-buy question, let's make a few assumptions (as dangerous as "assuming" can be), based on the Baltimore-area market.

Giving your son a 30-year fixed-rate loan at 7.5 percent, and placing his household income in a 25-percent tax bracket, we'll take a 1-percent property tax rate and anticipate 2 percent in annual home appreciation.

Then, we'll assume a monthly rental payment of $1,200 on a three-bedroom, $200,000 house over the two-year planned occupancy and come up with a very rough calculation. (We don't know what kind of down payment he would be able to make, after all.)

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Using this formula, buying could cost $2,000 or $3,000 more than renting on an annual basis over such a short period of time. However, an extra year's stay in the home would make it about an even proposition. Regardless, he'll probably have the luxury of some attractive choices based on what should be a nicely profitable sale of the Massachusetts home.

The answer may all boil down to how much physical and emotional energy your son and his family want to put into the whole home-buying and home-selling process. For more insight into those considerations, try our buy-or-rent calculator.

He's got a lot of important research to do at Johns Hopkins, you understand.

Either way, home-inventory turnover in that historic area of Baltimore should afford him a wide variety of buying and renting options, says real estate agent Dan Balk of Long & Foster Real Estate.

There are many spacious, stately brick homes in the historic Baltimore neighborhoods of Mount Vernon, Charles Village and Oakenshaw, topping out at around $300,000. Slightly newer neighborhoods have a nice selection of $200,000 homes, Balk says.

Balk recently sold a three-story historic home to a Baltimore-area college professor, who plans to lease out the upper floors and live in the lower one.

With a transient student population, numerous rental opportunities should open up in early June. But tell your son not to tarry. His window of opportunity for good rentals is narrower than it is for home buying. In early December, there were 1,700 residential properties for sale in the city of Baltimore, but only 56 rental homes, Long & Foster reports.

-- Posted: Dec. 6, 2003

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How mortgages work: Buying vs. renting
10 biggest home buying mistakes
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