Redondo Beach Rent vs Buy Real Estate

North Redondo Beach Townhome Sold by Ellis Posner

I've previously written a number of blog posts re Rent vs Buy and I have to say that with the developments I've seen over the last year, depending on your circumstances buying your principle residence is the way to go. At least in Redondo Beach CA. And that's not just because I'm a Redondo Beach Realtor and make money from selling homes.

The one caveat to the following discussion is the underlying assumption that you will be in the property you buy for at least 2 years. 

So for the sake of discussion, let's put aside all the amenities of owning such as the potential income tax savings (check with your CPA), convenience (paint whatever color you want to), and certainty (you know what your payments will be) and just look at some financial considerations. 

For 2015 YTD there have been 519 sales in North Redondo Beach with a median sales price of $715K. Curiously the average sales price is higher at $843,000. But if you were to ask me to ballpark a good rent vs buy number to work with, it would be $750,000.

So, let's say you buy a property for $750K with 2-% down and pay 4.25% interest. That would make your 30 year amortizing mortgage $2,950 per month. Let's throw in another $750 for property taxes and you are at $3700 per month. More or less about the same as you might pay in rent or maybe about a few hundred dollars higher.

But let's look at what happens over 5 years considering 3% housing appreciation per year - which is lower than economists are predicting in this area.

At the end of 5 years your $750K place could well be worth $870K and at the end of 10 years possibly $1,080,000.

So for the skeptics in the audience, here's a real life example from one of my listings: 2419 Grant Ave Unit C (pictured above).

This rear unit 3 on a lot townhouse was sold new in 2003 for $510,000. It has changed hands a few times. The last time it was listed and sold I was the listing agent. I listed it for $749,000 and it sold in 4 days for $765,000.

If I take my 3% annual appreciation formula and apply it, then the 2015 price would have been only $727K. So, you can see this calculation is quite conservative. (Curiously I also sold a similar "B" middle unit in the next building for around $725K so the numbers on that one would have penciled out more closely.)

In fact Unit C could probably be sold for over $800K today which is even a great rate of appreciation.

Now I'm not saying that there aren't home owners who bought on absolutely the high point of the previous market who are still under water or that people have lost money, had to do short sales or worse.

What I am saying is that when you are paying rent, you are not getting any money back, ever, under any circumstance (other than your security deposit). Once you write that rent check, the money is gone forever.

But let's look again at my example of Grant.

In the case of Grant, had the original owner out down 20% (approximately $100K) and sold recently for $765K, they would have realized over $225K of most likely tax free income. That's about $18,750 per year. Factor in whatever write offs the home owner would get and that's most likely well over $20K per year. 

And that, my friends, is a lot less than the rent would have been.