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Renting vs. Buying; What Makes Sense In Massachusetts Today?

By: Ryan Clunan

Published: July 09, 2015


What is The American Dream

Our Founding Fathers stated the revolutionary idea that each person’s desire to pursue their own version of happiness was not self-indulgence, but a necessary need of a successful society. FDR envisioned this American Dream as, “As decent housing, a good job, education and healthcare.” Massachusetts features some of the highest living costs in the U.S. and thus, FDR’s American Dream, to some appears unattainable. Below, we have taken a look at the average rental rates vs. mortgage costs throughout greater Boston. These numbers can help you determine what makes most sense in Massachusetts today; renting vs. buying. 

The Case for Buying 

Many Americans see buying a home as an essential step in a successful life, and owning one can bring significant financial benefits. All large investments come with risks, however these can be mitigated with proper guidance of a real estate professional to handle the necessary research and decision making processes.

Pros:

  • Build equity — Your wealth will increase as you gain more equity in your home.
  • Tax advantages — Mortgage interest is tax deductible as per IRS code.
  • Stabilize your payments — Monthly payments are static if your loan has a fixed interest rate.
  • Gain a sense of community — Homeowners are often more involved in the well-being of their communities; many homeowners work together for better schools and less crime.
  • Have a secure place for your family to live — A home provides a permanent place for your family. You can decorate or expand a house the way you like to create your dream home.

Cons:

  • Maintenance costs — It takes work and money to keep a home in good condition, approximately 3% of the total value per year.
  • Ties up your cash — Selling your home may not be possible during the first few years of ownership if a move is necessary.
  • Can fluctuate in value — There is no guarantee that your home will increase in value.
  • Obligates your finances — When you buy a home, you are obligated to a set monthly payment.

The Case for Renting

Given the wide array of potential benefits, homeowners are often surprised to learn that buying isn’t always the smartest financial option. Even people who want to own a home at some point can benefit from renting for a while to save up for a larger down payment. If available inventory is minimal, renting while you wait for a wider variety of homes to be listed can work in your benefit. 

Pros:

  • More flexibility – Ideal for those who could be faced with sudden changes such as a job relocation.
  • Affordability – Possibility of living in an area in which you could not afford to own.
  • Ease of Relocation – No need to find another tenant when moving out, just pick up and go.
  • Limited Expenses – Renters insurance is generally optional and all maintenance of the property is the Homeowner’s responsibility.
  • Liquidity – Additional savings are free to invest elsewhere.

Cons:

  • Binding Contracts – A tenant is bound by the rules of the lease agreement.
  • Property Managers – When renting, you will often have to deal with a property manager who will be the liaison between you and the Homeowner. This can result in issues taking longer to resolve given there is a 3rd party involved.
  • No ROI – No wealth creation or return on investment since the property will never legally belong to the Tenant, and instead, the Tenant is paying towards the Homeowner’s home loan.
  • Lack of Control – You will have no control over annual rental fluctuations which are directly affected by inflation.
  • Uncertainty – There is no guarantee that a lease will be renewed when it expires.

Average Rent vs. Sale Prices in Massachusetts (2015)

Average Rental Prices:

via MLS (July 9, 2015)

Boston:

Back Bay

$5,005.00

Beacon Hill

$4,102.00

Charlestown

$3,303.00

Financial District

$3,664.00

North End

$2,987.00

Seaport

$4,302.00

South Boston

$3,191.00

South End

$3,493.00

Waterfront

$3,246.00

South Shore

Cohassett

$4,988.00

Hingham

$4,867.00

Scituate

$2,242.00

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Average Sale Price in Massachusetts:

via MLS (July 9, 2015)

Boston (Condo):

Back Bay

$1,521,159.00

Beacon Hill                           

$870,909.00

Charlestown

$638,857.00

Financial District

$594,389.00

North End

$516,862.00

Seaport

$974,022.00

South Boston

$593,072.00

South End

$997,538.00

Waterfront

$1,108,069.00

South Shore (Condo & Single Family)

Cohassett

$816,193.00

Hingham

$763,596.00

Scituate

$562,882.00

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Recommendations

Given the number of variables that come into play for anyone making the decision to rent or buy, it is not possible to have one clear cut answer, which is best. However, now that we know the average rental prices vs. the average sale prices in the major regions of Downtown Boston and the South Shore, we are able to determine what makes most sense. I have utilized a mortgage calculator to determine the average monthly payments per town based on the general assumption that a buyer would put 20% down and have excellent credit thus receiving a rate of 4.00%. See below for the outcome;

Cost of Ownership Per Town

Boston:

Back Bay

 

Vs. Average Rental Cost of; $5,005.00.

               Best Option: Rent

 

Beacon Hill                           

Beacon Hill

 

Vs. Average Rental Cost of; $4,102.00

                Best Option: Buy

 

Charlestown

Charlestown

 

Vs. Average Rental Cost of; $3,303.00

               Best Option: Buy

 

Financial District

Financial District

 

Vs. Average Rental Cost of; $3,664.00

              Best Option: Buy

 

North End

North End

 

Vs. Average Rental Cost of; $2,987.00

               Best Option: Buy

 

Seaport

Seaport

 

Vs. Average Rental Cost of; $4,302.00

               Best Option: Buy

 

South Boston

South Boston

 

Vs. Average Rental Cost of; $3,191.00

               Best Option: Buy

 

South End

South End

 

Vs. Average Rental Cost of; $3,493.00

               Best Option: Buy

 

Waterfront

Waterfront

Vs. Average Rental Cost of; $3,246.00

               Best Option: Rent

 

 

Cohassett

Cohasset

 

Vs. Average Rental Cost of; $4,988.00

               Best Option: Buy

 

Hingham

Hingham

 

Vs. Average Rental Cost of; $4,867.00

               Best Option: Buy

 

Scituate

Scituate

 

Vs. Average Rental Cost of; $2,242.00

                Best Option: Buy

 


So… do you rent or buy?

As stated various times throughout this article every individual has a unique situation. Be it; income, lifestyle, future plans or goals and countless other variables, renting vs buying is not one size fits all. If you are interested in weighing your options, I strongly recommend speaking with a licensed professional to review your situation. Please feel free to contact me at anytime to review your goals and desires.

 

Sources:

The State of Working America, “The Great Recession” (http://www.stateofworkingamerica.com)

About News, “What is the American Dream” (http://useconomy.about.com/od/grossdomesticproduct/a/American_Dream.htm)

Mortgage Calculator (http://www.mortgagecalculator.org)

Contact Ryan Clunan

rclunan@campionre.com
617.686.4966

172 Newbury Street
Boston, MA 02116