Is It Time to Rent or Buy In Annapolis, Maryland?
Bret Arends at the Wall Street Journal recently wrote "A Fresh Look at Rent vs. Buy" in the Wall Street Journal. With an opening line of "Why on Earth would you buy down here when you can rent?" it seemed like an irresistible read. In the article he discusses Trulia.com's look at major real estate markets across the country in their attempt to answer the question "Is it cheaper to buy, or to rent?" When looking at the total cost of home ownership including principal, interest, taxes, insurance and all other costs versus renting they offered the following guidelines:
- Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city.
- Price-to-Rent Ratio of 16-20: The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation.
- Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.
Trulia.com when so far as to put a "rent vs. buy" calculator on their website. According to Trulia.com's Top 50 City Rent v Buy Index Baltimore is has a 12 Price-to-rent Ratio and Washington DC has a 14 Price-to-rent Ratio. So it looks like it for both Baltimore and Washington DC it's now cheaper to own than to rent according to their analysis. In follow-up I thought that it was time to take a careful look at both Anne Arundel County and Annapolis, Maryland rent versus buy to see just how well the local area compared using this approach. The formula for calculating the price-to-rent ratio is:
Price-to-Rent Ratio = Sales Price divided by (Rent Price times 12)
There were 220 properties rented in Anne Arundel County in May, 2010. The average rental was for $1,801 per month. The average sale price for May was $344,866. Using the rent vs. buy formula, the price-to-rent ratio for Anne Arundel county is 15.9 - which puts it into the "it might make sense" to buy over renting zone.
There were 59 properties rented in Annapolis, Maryland in May, 2010. The average rental was for $1805 per month. The average sale price in Annapolis in May was $503,884. Using the same rent vs. buy formula, the price-to-rent ratio for Annapolis is 23.3 - where the cost of owning a home is much greater than renting.
So, while it might be better to own in the greater Baltimore area, in Anne Arundel County the decision to buy versus rent will depend on your situation. However in Annapolis, it may make more sense to rent instead of purchasing because the cost of owning exceeds that of renting.
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