Rent vs. Buy a home in the Temecula Valley
We all understand the benefits of homeownership. But in today's market, particularly here in the Temecula Valley, where we have seen and felt so much depreciation in home values, many have chosen to rent vs. buy.
Well how about this? Rent may be costing you more each month than owning! Buying a home fell below renting costs in 74% of the country’s 50 largest cities over July, with 12% of cities seeing higher price tags for apartments than for houses, according to real estate website Trulia. Trulia uses the rent ratio formula. Not sure what the rent ratio formula is? Think about it this way... If you find two similar houses, one for sale and the other for rent and divide the sale price by the annual rent, you can call the result the Rent Ratio.
I decided to put the rent ratio formula to the test on two very similar homes I found listed in Temecula:
- The first home is for rent. It is a 4 Bedroom, 3 bath, Single-Family Home with 2,068 sqft on Masters Drive in Temecula, CA listed for rent at $2,200/mo.
- The second home is for sale. It is a 4 Bedroom, 3.5 bath, Single-Family Home with 2,018 sqft on Shorewood Court in Temecula, CA listed for sale at $232,900. You could buy this home with estimated payments of just $1,369/mo!
The annual rent for the first home is $26,400. So the rent ratio of these two lovely Temecula properties is $232,900/$26,400 = 8.82. So what does that mean? Basically, a rent ratio above 20 means that the monthly costs of ownership will exceed the cost of renting. Anything below that starts to indicate that home ownership is more financially sound than renting. Anything less than 10-14 is clearly a buying sign. On this one specific example, we were at an 8.82.
Just like in the Temecula Valley, real estate markets across the country are experiencing a declining rent ratio. Which makes for excellent opportunities for first time home buyers. Prices of homes continue to decline here in the Temecula Valley while rents for single family homes are remaining constant (or increasing).
If you are a Temecula Valley resident who is currently on the fence over whether to rent vs. buy, we would be happy to sit down with you and discuss your specific needs. Contact Janet Hoesing, our Buyer's Specialist by email or at 951-837-6242 for more information. The Kleen Realty Group serves the entire Temecula Valley, including Temecula, Murrieta, Menifee, Wildomar, Winchester, and beyond.
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