Rent Vs Buy Phoenix (Mesa: apartment complex, renters, insurance)

[DukeSilverPaid]

So I currently live in El Paso and looking to relocate to Phoenix in the near future. When I get on housing sites, again and again I see homes in places like Mesa selling for $270-$300 grand and yet when I look up renting houses, I see comparable homes for rent for as little as $1300-$1500 a month.

I know that everyone wants to own their own home and all but I've done that already and for the most part, people who rent out a house they have a mortgage on get razor thin profit margins. Phoenix seems almost as if people are possibly willing to lose money monthly to rent out their houses. Is this true?


A mortgage for $270,000 will cost about $1300 a month at 30 years. Throw in tax, insurance and upkeep and the price (for a home in Texas) and you are looking at about $1700 a month minimum. Yet these same houses are renting for $1500 a month in the phoenix area.

Am I missing something here? Are people just not wanting to sell or what?

[JGMotorsport64]

Originally Posted by DukeSilverPaid

So I currently live in El Paso and looking to relocate to Phoenix in the near future. When I get on housing sites, again and again I see homes in places like Mesa selling for $270-$300 grand and yet when I look up renting houses, I see comparable homes for rent for as little as $1300-$1500 a month.

I know that everyone wants to own their own home and all but I've done that already and for the most part, people who rent out a house they have a mortgage on get razor thin profit margins. Phoenix seems almost as if people are possibly willing to lose money monthly to rent out their houses. Is this true?


A mortgage for $270,000 will cost about $1300 a month at 30 years. Throw in tax, insurance and upkeep and the price (for a home in Texas) and you are looking at about $1700 a month minimum. Yet these same houses are renting for $1500 a month in the phoenix area.

Am I missing something here? Are people just not wanting to sell or what?

For a house at around 270 in AZ it’s more like 1550. We have lower property taxes than Texas.

That said, you’ve identified a problem in our housing market. Rents and Mortgage have reached parity making it hard for landlords to do traditional rentals and has led many people like you to just buy instead.

Landlords do not take a loss, it’s likely they purchased the homes a few years ago when prices were a lot lower and are pocketing the difference (like me).

The ones getting in the game now are doing AirBNB, VRBO, or if they’re especially ambitious, grouphomes (which while difficult is potentially very lucrative).

[DukeSilverPaid]

Originally Posted by JGMotorsport64

For a house at around 270 in AZ it’s more like 1550. We have lower property taxes than Texas.

That said, you’ve identified a problem in our housing market. Rents and Mortgage have reached parity making it hard for landlords to do traditional rentals and has led many people like you to just buy instead.

Landlords do not take a loss, it’s likely they purchased the homes a few years ago when prices were a lot lower and are pocketing the difference (like me).

The ones getting in the game now are doing AirBNB, VRBO, or if they’re especially ambitious, grouphomes (which while difficult is potentially very lucrative).

I'm in the process of selling my home in El Paso now. For what I owe on it there is no sense in renting it out because even though I could break even, eventually the house will need more paint, new AC ect. Plus liability of pet and children damage.

We have a situation on the east side of town near Ft. Bliss out here where people get stationed and buy, only to get moved 3 years later and realize that they are way underwater on the mortgage, so they just rent it out in hopes that the value will eventually go up and they can get out from underneath it.

Do you see the prices going down hard with another recession? If the baby boomers stop coming because they need to work longer and prolong retirement like what happened in 2008, do you think that AZ will get hit hard again or do you think that is a thing of the past?

And so a lot of these landlords have no incentive to sell since they already got the houses cheap, wouldn't that possibly mean that there is actually an excess? Are people just buying because of the old mantra that "buying is always a solid investment"?

If it's cheaper to rent then I couldn't see any reason to buy.

[Tall Traveler]

Originally Posted by DukeSilverPaid

So I currently live in El Paso and looking to relocate to Phoenix in the near future. When I get on housing sites, again and again I see homes in places like Mesa selling for $270-$300 grand and yet when I look up renting houses, I see comparable homes for rent for as little as $1300-$1500 a month.

I know that everyone wants to own their own home and all but I've done that already and for the most part, people who rent out a house they have a mortgage on get razor thin profit margins. Phoenix seems almost as if people are possibly willing to lose money monthly to rent out their houses. Is this true?


A mortgage for $270,000 will cost about $1300 a month at 30 years. Throw in tax, insurance and upkeep and the price (for a home in Texas) and you are looking at about $1700 a month minimum. Yet these same houses are renting for $1500 a month in the phoenix area.

Am I missing something here? Are people just not wanting to sell or what?

I looked at a house that I own in the area for similar houses and what it would cost for the note, insurance and property taxes and it came to $1245 and that house rents for $1395/mo.....here's how I would analyze it:
- Over time, rents will go up and your note will stay the same
- Over sufficient time, your house would be paid off while renting that won't happen
- If you buy a house, you will have a down payment, fees to purchase and if you sell, there's significant cost to do that as well and then of course maintenance
- Over what period of time of ownership will the cost of buying versus renting and paying down the mortgage and house appreciation reach a break even point.....If you think you'll be in that house for a period longer than break even point then buy if not, don't buy and live with renting

[DukeSilverPaid]

Originally Posted by Tall Traveler

I looked at a house that I own in the area for similar houses and what it would cost for the note, insurance and property taxes and it came to $1245 and that house rents for $1395/mo.....here's how I would analyze it:
- Over time, rents will go up and your note will stay the same
- Over sufficient time, your house would be paid off while renting that won't happen
- If you buy a house, you will have a down payment, fees to purchase and if you sell, there's significant cost to do that as well and then of course maintenance
- Over what period of time of ownership will the cost of buying versus renting and paying down the mortgage and house appreciation reach a break even point.....If you think you'll be in that house for a period longer than break even point then buy if not, don't buy and live with renting

I'm sure you are right. I'm most likely just getting the numbers wrong. I think my concern was that if you are going with a property management company, then that $150 a month that is gross will be eaten up. Plus you still have paint on the outside every 15 years. Paint on the inside every 1-3 years. New linoleum or carpet every 5-10 years. Plumbers, carpet cleaners, maids for cleaning every 1-3 years, new AC every 15 years, new roof every 20 years (less if the house isn't new), potential water extraction cost and most importantly the risk of renters completely trashing the place.

But your point about rent going up and the note not ever going up is a fantastic one. And it makes more sense why investors see it as a great opportunity.


Thanks

[smoochaz]

have you ever heard the term "I'm too cheap to rent" - build on your equity, as opposed to paying someone else's mortgage- you can also color the walls and do what you want (within reason lol) + landlord can also not renew your lease after you made it your home - last point doesn't apply if you're renting in an apartment complex - but then ? other issues come with that.

I like being an owner because I like to control my domain-the little time we rented during our move here - we freaked out - people hanging on the stoop smoking smelling up our balcony; noise; no privacy; etc. but that was our luck - There are some really nice luxurious rentals - with great amenities. If you no longer want to deal with maintaining a home then it may be a great option for you - to each his own.

[Tall Traveler]

Originally Posted by DukeSilverPaid

I'm sure you are right. I'm most likely just getting the numbers wrong. I think my concern was that if you are going with a property management company, then that $150 a month that is gross will be eaten up. Plus you still have paint on the outside every 15 years. Paint on the inside every 1-3 years. New linoleum or carpet every 5-10 years. Plumbers, carpet cleaners, maids for cleaning every 1-3 years, new AC every 15 years, new roof every 20 years (less if the house isn't new), potential water extraction cost and most importantly the risk of renters completely trashing the place.

But your point about rent going up and the note not ever going up is a fantastic one. And it makes more sense why investors see it as a great opportunity.


Thanks

That's all true but 5 years from now, you'll still have the same note plus a slight increase for property valuation increase (keep in mind Arizona property taxes are much lower than Texas) while if you rent, rent will have gong up 30-40% and you won't have equity in a house.

I've long thought that it doesn't make financial sense to buy a house if you don't think you'll live in it at least 5 years due to the buy/sell cost of ownership...which is why I didn't buy my first house until I was 35 and now I own 6 of them with all but one for rent.

[FirebirdCamaro1220]

Originally Posted by smoochaz

have you ever heard the term "I'm too cheap to rent" - build on your equity, as opposed to paying someone else's mortgage- you can also color the walls and do what you want (within reason lol) + landlord can also not renew your lease after you made it your home - last point doesn't apply if you're renting in an apartment complex - but then ? other issues come with that.

I like being an owner because I like to control my domain-the little time we rented during our move here - we freaked out - people hanging on the stoop smoking smelling up our balcony; noise; no privacy; etc. but that was our luck - There are some really nice luxurious rentals - with great amenities. If you no longer want to deal with maintaining a home then it may be a great option for you - to each his own.

Buying is great IF you can come up with 20% down. Most first time buyers don't have $50k+ in cold hard cash

[jimj]

Originally Posted by FirebirdCamaro1220

Buying is great IF you can come up with 20% down. Most first time buyers don't have $50k+ in cold hard cash

Except there are 3% to even 0% down loans (rural FDA zero down loans).
I've used the 3% down program a couple of times and it worked out well for us and was cheaper in the long run than renting especially if one doesn't use one's home as a piggy bank.

My current mortgage is $750 on a 3% down home while the exact same home next door to us is renting for $1300...

[FirebirdCamaro1220]

Originally Posted by jimj

Except there are 3% to even 0% down loans (rural FDA zero down loans).
I've used the 3% down program a couple of times and it worked out well for us and was cheaper in the long run than renting especially if one doesn't use one's home as a piggy bank.

My current mortgage is $750 on a 3% down home while the exact same home next door to us is renting for $1300...

But at less than 20%, you also have PMI, which is burning money even worse than renting