Allen Brothers Houston Real Estate

It's Still Cheaper To Buy Than Rent In The Inner Loop

February 19th, 2015 5:40 PM by AllenBrothers Realtors

So many people these days are seeking a home inside the loop, near Houston’s downtown district. Young professionals in particular are eschewing the old pattern of inhabiting the suburbs/commuting into town, and are instead moving into the inner loop section of Houston in greater numbers than ever. In recent years, possibly due to the global financial crisis of 2008-09 and partly due to a generational change of preference, a great many young professional people have elected to rent something in the Montrose, Midtown and Heights areas instead of buy a big house in the suburbs. Banks changed their lending practices at this time, lowering interest rates and making mortgages more difficult to obtain. The pattern of increased renting in Houston probably reflects both these factors along with the fact that property inside the loop is extremely expensive compared to property in the suburbs. People looking to live near downtown want a place quick, and they want something within their budget. They know their budget won’t come close to the houses and bungalows for sale near downtown, so they rent an apartment or condo and consider themselves happy. The number of people doing this is a huge figure – thousands of people weekly move to Houston in the current thriving economy and begin searching for rental properties near the center of town. They all go out and look at the same duplexes, apartments, condos and small townhouses, and these all quickly disappear off the already tight rental market. Many people are forced to seek rental units elsewhere at the end of the day – units in areas that were their second or third choices, because they simply couldn’t locate anything in the highly coveted areas inside the loop. They begin taking units in areas like the Galleria and much further west around Westheimer and out toward the energy corridor.

What many of them don’t realize is that there are always a few units inside the Houston loop for sale that are just as nice as the ones they were seeking to rent. There are 1 bed/1 bath condo units located right in the center of Montrose, in the 670 square foot range, selling for $218,000. With a $44K down payment at 20% down, the monthly mortgage payment on such a unit would come to around $1087 with a 3.73% interest rate, which is better than with the current market rental rate for such units. Similar 2 bed/1 bath units are around 900 square feet and selling for around $295,000, which could be secured for a $1600/month mortgage at the same interest rate and a $44K down payment at 15% down. Once again, this is cheaper per month than renting a similar unit in a prime location. The bigger difference, of course, is that every payment you make on a mortgage is partial payment toward the equity of your own purchase, whereas a rental payment is more or less money that goes into the landlord’s pockets and is never seen again. If anything, this is a reason for any young professional who has money saved for a down payment to buy instead of rent. If you find yourself high and dry after searching Montrose and the Heights for a good rental unit, have good credit and $20-40K to spare for a down payment, you can afford any number of units for sale in the same area. After a few years, they will probably have appreciated in value and can be sold for a profit as well, something a rental unit won’t give you. You can also lease your unit out when you aren’t living there and enjoy an extra stream of monthly income based on the difference between your mortgage payment/expenses and the amount you are charging the tenant for rent.

 

 

 

Posted by AllenBrothers Realtors on February 19th, 2015 5:40 PM

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