Rent vs Own by the numbers
If there is one thing I hear most often when I talk to people about the real estate market in Denver is “housing is sooooo expensive in Denver!”
This conversation usually leads to further discussion about their living situation, which goes something like this.
Me: “So are you renting?”
Them: “Yes, we’re / I’m renting (eye roll).”
Me: “Do you mind me asking how much you’re paying in rent?”
Them: “Yeah sure, we’re paying around $2,500 a month for an apartment.”
// or “I’m paying around $1,000 a month for a room in my friend’s basement.“
Me: “Oh and how is that going?”
Them: “It’s OK, but I’m probably going to have to find another place because they need their basement back. I’d love to buy but I just can’t afford my own place. I’ll probably have to up my budget on rent coz I know I’ll find it hard to rent a place of my own for under $1,500.”
Me: “Well I would be happy to put you in touch with a lender who can talk to you about your buying power and help you make the first steps towards being able to buy something.”
Them: “Thanks that would be great but, I just don’t think I’d ever be able to afford to buy in Denver, especially where I want to live.”
Not wanting to be “that pushy real estate guy”, we part ways.
A few months later I will bump into them and I’ll ask how they’re going and what they’ve found to rent. Inevitably I hear something that goes along these lines.
Them: “I was looking for months and couldn’t find anything that I liked in my price range so I ended up leasing a place. It’s really small and I pay $2,100 a month.”
So in reality, they’ve gone from renting a room in someone’s basement for $1,000 a month (crazy), to settling on (what they perceive as) a“realistic” budget of $1,500, to begrudgingly end up paying $2,100 a month for something they sorta like.
I always find this an interesting mindset. That people are happy to “settle for” paying huge rental rates and an uncertain future, but are reluctant to take the first steps to investigate their options to buy an asset which comes with so many benefits.
Full disclosure needed at this point. James and I currently rent in Denver but are pre-approved and actively looking for property of our own. We see and want all the benefits of home ownership!
Speaking of which, let’s start there shall we:
Benefits of home ownership vs renting
Investment - having an asset that increases over time vs paying for someone else’s increasing asset.
Forced savings - paying a mortgage is essentially forced savings. When you go to sell a home years down the track, you potentially make more money than you ever would have saved if you had continued to rent. You come out with a chunk of change to reinvest or travel the world with…it’s your money honey!
Stability - having your own home takes away the uncertainty that comes with renting. Things like rental rate increases, pregnant room mates, the property being sold from under you for redevelopment.
Creative freedom - probably my most favorite. The ability to do what you want in your own home. Want to paint your bathroom saffron yellow? Go on with yo bad self and paint away!
Opportunity - remember our example renter paying $1,000 for a room in a house. Well if you own that house, you are able to rent out that room to help ease the burden of your mortgage!
Rent vs Own by the numbers
OK so they make a fair point, Denver certainly isn’t on the “most affordable places to live in the US” list (in fact it’s ranked 12th in the nation for highest median house price (2019 Economic Forecast for Metro Denver by Denver Metro Economic Development Corporation), but it is on the “one of the “most desirable places to live” list, (ranked third in the USA behind Austin, TX and Colorado Springs in 2018)! And both of those factors impact on each other.
Denver’s rental rates are one third higher than the national average (DMAR Market Report Dec 2018), with the average rental rate for a home in Denver Metro sitting at around +$2,000.
We are expecting a continued influx of people into the state in the new year and an additional 31,000 new jobs forecast in 2019 (2019 Economic Forecast for Metro Denver by Denver Metro Economic Development Corporation). Paired with still historically low interest rates, 300+ days of sunshine and a vibrant business sector, buying property in Denver is a smart move, especially with rental rates sitting where they are!
So if you’re wanting to plant your roots in Denver and have been putting off buying in favor of renting so that you can “just see what the market does”, the following tables illustrate what you could afford to buy based on the rent you’re paying.
I’v broken it down to illustrate the huge impact of interest rates on your buying power.
To state the obvious, tick tock, the longer you wait, the more likely the historically low interest rates will rise and the less you can afford to buy.
Knowledge is power as they say. Want to at least find out what you could afford to buy? I can connect you with some great lenders who offer a no-strings-attached chat about what you could loan.