Cyrillic Partners

Apartment hunting in San Francisco is both daunting and depressing. V and I looked at a one-bedroom place in my building over the weekend and were stunned to find that it was going for $2350 a month! We found ourselves wondering how we could ever afford to actually own a place of our own.

The Boston Globe recently ran an interesting case study on the difference between renting a place and owning it. A lady wrote to the paper asking for help assessing the deal her land lady had offered her. Broad is the paper’s evaluator and Pennucci is the lady looking to rent or buy:

Although the assessed value was $300,000, the online real estate service Zillow set the town house’s value at $240,000. Broad chose the lower number, checked out current mortgage rates, and looked at Pennucci’s tax return to calculate potential tax savings. The result: With a 6.25 percent fixed-rate 30-year mortgage, with no money down, monthly costs would come to $1,892. Given Pennucci’s 15 percent marginal tax rate, tax savings would drop the monthly expense to $1,738.

But when Broad moved on to Pennucci’s current living expenses, the benefits of home ownership began waning. Given the current $1,200 monthly rent, which Pennucci said accurately reflected the Medford rental market, ownership would increase monthly housing expenses 45 percent, costing an additional $538 a month.

“No matter how wonderful owning the place might be, right now renting is the better deal,” Broad said. The case for renting became even more compelling when Broad reviewed Pennucci’s cash flow and retirement savings.

Turns out that the extra $500+ was going to put a serious squeeze on Pennucci’s pocketbook, especially as she was looking at the cost of adopting a second girl from China.

The case study is a little misleading, though. The paper mentions Pennucci’s 15% marginal tax rate in passing. I imagine it is significantly lower than what two young professionals might expect to pay…

[Image from CartoonStock.com]

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