Me: I miss you. Do you still have that room available in your basement?
Mom: Um, you are 33 and you co-own a successful real estate company, why do you ask?
Me: Well, um, as you know I sold my condo last year and I am renting now. Rents are getting really expensive in Boston…
Mom: Um, well, storage is tight these days and we no longer have that room for you. Call your brother, maybe he has room for you.
Me: He lives in Iowa…
Mom: Well, maybe you should buy a home again and not have to worry about your rent payment increasing every year.
Me: You’re always right mom. Thank you. But if I can’t move back home, can I at least borrow a hundred bucks?
Mom: Oops…sorry, your dad and I have to run to Bingo….
So, just how out of control is the Boston rental market? There’s been articles recently in the Globe and I personally can say that I have not seen it anywhere close to like this since 2000, and frankly it is even more competitive now. Let’s start by looking at this snapshot at the current occupancy rate and average monthly rents per square foot of the following luxury rental buildings in Boston and Cambridge:
Ave. Rent PSF
So, for a 1000 square foot apartment, you’re looking at spending between $3500 to $5000 per month on rent in these buildings. This list of apartment buildings is representative of some of the Boston’s priciest rental apartment inventory, yet it is still 98% occupied on average (an extremely low vacancy rate), and the rents are just continuing to rise. In theory, there are fewer people who can afford this type of luxury apartment, given the cost, thus imagine how competitive it is for “average” product, like the typical rental apartments your see in the brownstones of the Back Bay, Beacon Hill, and The South End. Across the board, we are seeing rent increases and minimal selection for Boston apartments.
This begs the question, how does the current trend of the rental market correlate to buying? Does it make sense to re-examine the Rent vs Buy debate in Boston?
Rent vs Buy in Boston
One example would be to look at a typical rental and compare it to the cost of buying a similar condo. Say, for example, a typical 1,000 square foot 2 bedroom unit in 1330 Boylston in the Fenway which would cost about $3700 per month. At current mortgage rates, the same annual expense of renting this apartment would equate to carrying a mortgage of $625,000 (with a $300 condo fee and $5,000/year in real estate taxes added in)! This does not even factor in the tax benefits of deducting the mortgage interest you pay either. So you’re talking about being able to buy a $650,000-$700,000 condo for the same monthly cost as renting this example apartment.
To bring the point home, in the same general area as an apartment at 1330 Boylston, you could buy a really nice 2 bedroom condo for around$500,000 (like one the six 2 bedroom, 2 bath condos we just put on the market for sale 909 Beacon Street), and have a monthly payment nearly $1000 less per month in the same neighborhood for a similar size and quality home. Of course, you would need to have money saved for a down payment to make this work.
It goes without saying, but buying has to be right for you. You, at the very least, need:
- job & income stability
- cash for a down payment
- the desire to set down roots to live in the same place for a while
The point is though, if that is indeed the case, then now is a great time to buy in the Boston real estate market. The “value” of renting is losing its luster, especially with rents continuing to go up, and buying now before the inevitability of mortgage rates going up can save you potentially tens of thousands of dollars (or more) in the long run.
Moral of the story (or blog post in this case) is that the Boston rental market is as bullish as it gets. If you have the financial capability and have been straddling the rent vs buy fence, now is a great time to consider making the jump to the buy side. Just don’t ask your parents for the money, especially if they won’t even let you live in their basement…