Unless you are fortunate to live in a rent controlled building, you may have noticed your monthly rent rise dramatically in recent years. Checking in at $3,530 per month, the median rent for a one-bedroom has been the highest in the country for six months following a 13.5% rise last year (and up as much as 29.2% in Noe Valley). For many renters, what they pay out every month could easily be a mortgage payment on a comparable place– the monthly Principal + Interest on a $1,000,000 home is $3819.32, assuming 20% down and a 30-year mortgage fixed at 4%. As of today, there is more than 330 single-family homes and condos/TICs/lofts that are Active on the MLS listed for under $1,000,000.
Plugging in local San Francisco data (August 2015 sales figures) to the New York Times’ Rent vs. Buy calculator reveals some compelling numbers. Buying a condominium at August 2015’s $1,045,000 median sale price or a single-family home at the $1,225,444,000 median is a better financial decision even if you could rent for free!
San Francisco condominium Rent vs. Buy results:
San Francisco single-family home Rent vs. Buy results:
The assumptions I made in the above calculations are as follows:
- Purchase price: $1,045,000 for condos, $1,225,444 for single-family homes
- Length of time in home: 5 years
- Mortgage Rate: 4%
- Down payment: 20%
- Length of Mortgage: 30 years
- Home price growth rate: 13.3% for condos, 20.0% for single-family homes (12-month average, the NYT calculator maxes out at 15%)
- Rent growth rate: 13.5% (median one-bedroom increase in 2014)
- Investment rate of return: 7% (approx. long-term average annual ROI of stocks)
- Inflation Rate: 2%
- Property tax rate: 1.19%
- Marginal tax rate: 28%
- Taxes filed on a Joint Return
- Costs of buying a home: 3% (approx. closing costs)
- Costs of selling a home: 8% (approx. closing costs + marketing + customary 5% commission to brokers)
- Maintenance/renovation: 1%
- Homeowner’s insurance: 0.1% (approx. $50-$100+ per month depending on property type)
- Monthly utilities: $100
- Monthly common fees: $600 for condos, $0 for single-family homes
- Common fees deduction: 0%
- Security Deposit: 1 month
- Broker’s fee: 0%
- Renter’s Insurance: 0.1%
San Francisco condominium median price growth, 2005 to present:
San Francisco single-family home median price growth, 2005 to present:
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Meredith Martin is a Broker Associate at Paragon Real Estate Group and can be reached at Meredith@OpeningDoors.me
