We all know that Boston can be a pricey city, and a big chunk of every Bostonian’s monthly budget goes towards housing. Making the most of your housing dollars is key, which raises a very important question: which is cheaper, buying or renting? With the down payment and extra fees such as real estate taxes or condo association dues, many people assume that renting is more affordable than buying. However, depending on your financial decision, buying is frequently the top choice to get the best “bang for your buck”.
Let’s take a look at a couple real-life examples across the Greater Boston area: In Jamaica Plain–known for its lush public green spaces and laid-lack community feel–a two bedroom, one bath apartment with 800 square feet costs around $2,300 a month in rent. In contrast, a two bedroom, one bath condo with almost 1,050 square feet has an estimated monthly mortgage payment of just $1,775! This trend holds true in other neighborhoods as well: A 1,400-square-foot three bedroom, one bath apartment in Brookline will set you back about $3,000 a month in rent, while a similar condo unit carries a monthly mortgage payment of under $2,900.
Of course, comparing your potential mortgage payment to the average rent for similar apartments and houses does miss one thing: the additional costs associated with homeownership. From real estate taxes and mortgage insurance premiums to condominium association fees, these added expenses can bump your total homeownership costs above the average market rent in the short term. However, buying is still almost always cheaper than renting in the long term for 3 key reasons.
Reason #1: As Rents Rise, Your Mortgage Stays the Same.
One of the most important things to keep in mind when you consider purchasing a home, (assuming you opt for a fixed rate mortgage) is that your mortgage payment will stay the same for the entire life of the loan. In other words, if you’re paying $2,000 a month in mortgage today, that’s what your monthly payment will be 30 years from now. One major benefit of this stability is that it makes financial planning much easier.
Of course, the even bigger benefit is when you compare the stability of your mortgage payment to the marked instability in rents. Rents in Boston and its suburbs may fluctuate slightly from year to year, but over the long term–such as the 30-year span of the average mortgage–rents only move in one direction: UP! According to one report, the average rent in Boston increased from $1,859 in 2009 to $2,874 in 2017. That’s an increase of nearly 55% in less than 10 years!
To put it another way, even if your total costs of homeownership are greater than the costs associated with renting a similar property now, look forward 10 years (or even just two years). It’s almost certain that Boston’s market rents will quickly eclipse your mortgage payment.
Reason #2: Your Initial Home Investment WILL Appreciate in Value.
Home prices are subject to the same market forces as rents, pushing home values up higher and higher almost every year. While this upward trend can lead to increased costs as a renter, it can be an incredible boon as an owner. This report shows that the average median price of single-family homes throughout the Greater Boston area rose from $260,196 to $446,799 between 2000 & 2017, while the average median condo price increased from $176,686 to $402,279 – This represents growth of 72% and 128% respectively.
In other words, beyond the fact that you accrue value with a mortgage simply by paying down a portion of your principal each month, the equity in your home also increases as a natural result of Boston’s market forces. If you’d bought the average condo in Boston in 2000, you’d have built over $200,000 in total wealth over and above the value of your down payment and the principal paid on your mortgage. In this way, owning a home is a bit like an automatic savings account–unlike renting, where the money you pay each month essentially disappears.
Reason #3: Owning Offers Significant Tax Benefits.
Clearly, owning is a more financially stable and less expensive option over a period of years, but several key tax benefits can make owning cheaper than renting right now. Homeowners can deduct the interest they pay on their mortgage and their property taxes on their annual tax returns each year. With an interest rate of 3.5 to 4 percent and typical property taxes, this can equally a deduction on your federal tax return of around 20 percent of your total yearly homeownership costs. In contrast, renters can’t deduct any portion of their rent from their yearly return. These significant tax advantages can help bring the monthly costs of owning a home or apartment below the cost of renting from day one.
Ready to Buy?
Clearly, for many people, buying is a much sounder financial decision than renting. If you’re ready to take the plunge and begin looking for your new home, choosing the right real estate team to lead your search is key to finding the right house or apartment in the right location at the right price.
At Metro Realty, we’ve been the Boston metropolitan area’s premier boutique realtor for more than 30 years. Our team of Metro Sales Advisors has a singular focus: bringing the best value to our clients. The core members of our Metro Sales Advisors–Adam Umina, Chris Anderson, Sue Carroll and Ryan McCormick–bring combined decades of experience in real estate, sales, client service, communication and customer support to each and every home search. Whether you’re a first-time buyer or looking to upgrade to a larger home or apartment, our Metro Sales Advisors can share their knowledge and expertise with you to ensure you find the perfect home for you and your family.
To speak with one of our Metro Sales Advisors and set up an appointment to being your home search, just contact us online or call us at (617) 232-2255.