Buy vs. Rent in DC?

I know you are wondering “Are you ever going to buy vs. rent in DC?” The buy vs. rent question has perplexed us for a while. We frequently discuss buying a DC Home. I watch listings and chat with realtor friends.  It’s tempting to own a slice of this historic town.

adams morgan row house DC grand dame SE row housedc condo for sale

So why not snatch up one of these beauties?  A few good reasons.  1) We love our children’s public school. Living in boundary for that school limits us to about a 1-mile radius. 2) Within that 1-mile radius, few homes list for less than $1 million. 3) We love our apartment and its extraordinary view of the city.

Nevertheless, a listing caught our eye recently: 1,400 square feet in a neoclassical DC building for less than $1 million!  The Husband and I went to take a peek.  Here is what we found:

Classic architecture!

2311 Connecticut Ave.

Grand foyer!
condo foyer

Beautiful entryway!

condo entryway

Large living room and open floor plan!

condo living room

Large dining room and kitchen!

condo kitchen

Large master bedroom!

condo master

2nd Bedroom!

condo bedroom

2 bathrooms!

condo master bath

condo bath

Rooftop deck!

condo rooftop

This was an ideal unit to weigh vs. our current 2 bedroom/2 bathroom apartment rental. How would living in this unit compare to living in our apartment? Would it make financial sense to buy? Let’s first consider lifestyle:

Buy vs. Rent Lifestyle Analysis:

Apartment Condominium Winner
Architecture Mid-Century Modern; Bold Shaping. Historic Neo-Classical; Beautiful Details Throughout. Condominium
Sq Feet 1,200 sq ft 1,451 sq ft Condominium
Kitchen Small; Entry-Level Appliances; Cheap Countertops and Cabinets. Large; Mid-Level Appliances; Beautiful Countertops and Cabinets. Condominium
Living Spacious; Large Windows with View of Rock Creek. Cozy; Good Light.

Apartment

Bedrooms 2 good size 2 good size

Tie

Closets 2 Walk-In; 1 Coat; 1 Hall 0 Walk-In; 2 Small Bedroom; 1 Coat; Built-In Cabinets

Apartment

Bathrooms 1 Moderate Size; 1 Small; Cheap Countertops and Sinks. 2 Small; modest finishes.

Tie

Laundry Laundry Room (think 4-plus loads at a time); $2 per run. One Washer and Dryer per Floor, Free.

Tie

View Large windows in every room with 10th floor view of Rock Creek Park. 2nd Floor view of Kalorama neighborhood.

Apartment

Parking Garage, $190 per mth None.

Apartment

Bike Storage Cage; Repair Stand and Bench; $10 per mth. Overcrowded Rack; Free.

Apartment

Balcony Large. None.

Apartment

Other Amenities Rooftop Deck, Sun Room, Workout Room, Business Center. Most amazing rooftop deck ever! Spacious view of Rock Creek Park.

Tie

Lifestyle is a close call. What about finances? I asked my CPA, tax lawyer husband to use his mad excel skills to build a buy vs. rent spreadsheet. The NY Times buy vs. rent calculator is excellent, but we wanted more than a break-even point. We wanted to understand how buying versus renting affected our long-term investment goals. Let’s start with assumptions:

Buy vs. Rent Financial Analysis:

Prices   Costs
Year 1 Rent (Mthly) $3,200 General Inflation Rate 1.00%
Sales Price $780,000 Rent Inflation Rate 3.00%
Homeowners Ins (Yearly)* $200
Purchase Loan Renters Ins (Yearly) $200
Downpayment 20% HOA Fees (Mthly) $1,032
Financed Amount $624,000 Maintenance Rate 2.00%
Note Years 30 Additional Utilities (Mthly)** $0.00
Interest Rate 4.00% Property Tax Rate 0.008500
Mortgage Ins Rate 0.0005 Purchase Fees 1.00%
Mortgage Ins Pmt (Mthly) $0.00 Selling Fees 6.00%
Investment Rates Tax Rates
Investment Return 6.00% Federal Income Tax Rate 28.00%
Real Estate Return 4.00% State Income Tax Rate 8.50%

Now, the calculations:

Buy Rent
Years 30 Years 30
Interest Pmts ($444,902.71) Rent Pmt ($1,826,895.96)
Homeowners Ins ($6,956.98) Renters Ins ($6,956.98)
Real Estate Return $1,749,850.06 Investment Return – Down Payment & Monthly Contributions $974,700.67
Tax Benefit $162,389.49
Property Tax ($386,716.86)
Maintenance ($909,922.03)
HOA Fees ($430,776.10)
Additional Utilities $0.00
Purchase Fees ($7,800.00)
Selling Fees ($151,791.00)
Net Return ($426,626.13) Net Return ($859,152.27)

 

The below chart shows the comparison year by year. Both options generate net losses. The loss from buying begins to level out and recover at year 7. The buy line would likely continue to move up into profit territory after year 30.

Buy vs Rent Graph

What do you think? Did we make reasonable assumptions? Did we account for all the significant expenses? All the significant benefits? Your turn. Click on Real Estate Calculator to create your own analysis.

More than anything, we concluded that this type of financial analysis is difficult. Most of it turns on assumptions that are tricky to predict. And children don’t make financial sense, yet we have three. So for now, I’ll keep playing with function and style in our apartment.

 

 

 

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