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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.
Thanks,
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.)
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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