So, you’re thinking about whether to rent or own. Maybe you’re new to Seattle, or maybe you’ve been renting in the city for awhile and are weighing your options.
In the last year or so, Seattle’s real estate market has softened up a bit, so if you’ve been thinking about buying, now is really the time to get serious and take a hard look at the numbers. We have a new listing in Queen Anne (a move-in ready studio in the *perfect* location), and it’s a great opportunity for us to really dive into the numbers on renting vs. owning.
Now, things are about to get REAL. Get ready to have your mind blown.
Here are the numbers behind BUYING a home similar to our latest listing in Queen Anne (and of course, this is just for an example—it pencils out the same for anything at the same price point):
- Let’s say you want to buy a place that’s listed at $330,000.
- If you put down 20%, that = $66,000 of upfront cost. This also means that you have $264,000 for your original loan amount.
- Let’s say you get a low 3.25% interest rate with a 30-year loan. You’ll end up making 360 payments of $1,149 (which includes both principal and interest) over the 30-year period. (Put in the numbers to this Loan Amortization Calculator to see how it pans out for yourself!)
Here’s a screenshot of the amortization chart for this specific situation—if you visit the actual calculator, the graph is interactive and breaks down your monthly principal + interest payment each month.
- Now, there are a few variables that will go into your monthly cost (property taxes, insurance, utilities, etc.), but let’s say that your monthly payment ends up being $1,700/month. That comes to $20,400 total cost for your housing in the first year.
- The exciting part here are the tax benefits that come along with home ownership. Homeowners get to deduct mortgage interest from their income. So, let’s say you paid $8,500 in interest that first year (again, we recommend referencing the Loan Amortization Calculator!), and let’s say your salary is $100,000. Suddenly you’re only going to be taxed on $91,500, saving you about $708 per month. If you’re paying $1,700/month to live in your home, $1,700-$708 = $992. You’re living in a condo in a coveted Seattle location for just $992/month! This is of course at the end of the year when you get your tax refund or bill.
- But things keep getting better. We still need to factor in the appreciation of your home. Even if you estimate a VERY conservative appreciation rate of 3% per year, your home gained $9,900 in value in just the first year. Divide that $9,990 of appreciation by 12 months = $825 per month.
3% appreciation per year on $330,000 purchase price:
- Year 1 = $339,000
- Year 2 = $349,197
- Year 3 = $359,672
- Take that post-tax deduction rate of $992/month – $825/monthly appreciation = you’re essentially living in the condo for $167/month
And now, here are the specs behind RENTING a similar condo in the Queen Anne neighborhood:
- A condo of this size in the same location is going to run you about $2,000/month. (And that’s a conservative estimate as well—factor in parking, utilities, renter’s insurance, and you might end up paying more.)
- After a year, that’s $24,000 you’ve spent on housing costs.
- You don’t get any tax write offs on that.
- Plus, factor in yearly rent increases. Rent increases can vary quite a bit, but in Seattle, we average about an 8% rent increase every year. So Year 1 might be $2,000/month, but at an 8% yearly increase Year 2 will be $2,160, Year 3 will be $2,332, Year 4 will be $2,518, and so on.
We’ve talked to a lot of people who know they want to live in the city during their 20s, and then move to the suburbs when they get a bit older and want to start a family. A lot of people figure they’ll just wait to buy a place once they move, but making that investment in the city now can pay off BIG time down the road. If you buy the city condo now, you can sell it and use that as down payment for your home in the suburbs (or wherever!), or keep the condo as an investment property to rent out.
Curious to see the Queen Anne condo we referenced in our example?