Please do not hesitate to contact me for more details. Thank you and I look forward to hearing from you.
Thank you for the opportunity to answer an age ol' question. Actually your question is two fold. Your specific question as it relates to the property in Blockhouse and the general question of ownership vs. Renting.
1st. Question: Answer- Economics (Supply & Demand) and the forces surrounding it. As the housing market has softened over the last 2 years due to most specifically tighter credit/lending practices more people have been forced to rent as opposed to buying a new home. This drives demand up for rental properties thus the rent values go up as well. It has been good times recently for landlords. The landlord is reaping the benefit of ownership and the positive cash flow on their money (investment). Their money is making them money. Your money is well, making them money and not you money. The mortage comparison you reference is based on financial principals. You borrow x and pay interest on x which is ammortized over a certain time period thus creating a lower payment. You simply are re-paying a principal amount plus the cost of borrowing that money over time. The rental rate takes the previous statement into account and then adds to it a profit (cash flow) based purely on what the landlord can get on a specific property.
2nd. Question: Answer- Core investment rules just do not change. Your money can work for you or for someone else. If you pay rent each month you might as well take the money and thow it in the street in terms of any return. You lose out on:
1. The growth of your money (Equity)
2. Tax Benefits
3. Interest Deductions
4. Ownership Benefits
You give all these up to someone else in a rental situation. If there is anyway you can qualify for a mortgage you are always better off owning vs. renting. We all work to hard in todays' world to throw away our money.
Hope this helps.
Stephen B. McClain, Broker Owner
Cornerstone New Home Solutions
There are two main forces that create the market cycle. Fear and Greed.
In 2005, the level of greed was mind boggling. It pushed a lot of people to make very poor decisions.
Now we are the period of fear. Fear is everywhere.
In my area there are a few very bright investors (the same ones that sold near the top) that are buying again. The masses will hide in fear until gains are obvious.
So people are renting. As long as rental demand is high and supply is low, the rent prices will go up.
I don't think your missing anything unless the home you own is paid for and you have cash (no mortgage) to buy investment property.
These periods exist in any market. They used to be more prominent in the stock market than now exist - the speed of a stock transaction is now so fast that these windows do not exist for very long. You don't hear as much about arbitrage in the stock market as you did 30 years ago, but that was a similar imbalance that allowed the quick moving to make a short term profit.
I don't have access to MLS data in your market, but if you are in a position to capitalize on this market, then I would suggest that you contact a local REALTOR, verify your hypothesis, and then act!
Hope it works well for you.
The numbers you give are a big reason that first time home buyers who can qualify are a larger and growing segment of the home buying market.
It is also why there are so many people are investing in real estate. But remember there are many other factors for investors when calculating their return on investment like; amount needed to bring a property up to code and make livable for investors, periods of time property is vacant and the resulting negative cash flow, repairs, and the cost to rehab after a tenant moves out. For investors cash flow is not the only question when considering a purchase.
Best of luck .. Bruce