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In Piney Orchard, Buying Much Cheaper Than Renting

A tale of two townhouses shows you can rent for $1,795 per month or buy for $1,385 per month.

The blue, three-story townhouses are located directly across the street from one another in the River Colony section of Piney Orchard, just a few hundred yards from Piney Orchard Elementary School.

On one side of the street, the home at 2711 Middle Neck Road currently is for sale for $229,000. Across from it, 2714 Middle Neck Road recently rented for $1,795 per month.

So which home offers the better value?

By nearly any measure, it’s the home that’s for sale.

Both properties feature colonial architecture, three bedrooms, two-and-a-half bathrooms, a storage building and a fenced-in yard. The properties have almost identical floor plans and were built within a year of one another.

But the biggest difference is the demand for the two properties. While the for-sale home has been on the market since last July, the rental property recently was snapped up in only 14 days.

Ask almost anyone who’s moved to the area over the last three years and they’ll tell you that the rental market here is searing hot. The cost of renting residential property in greater Odenton has increased by 25 percent or more during that time, while the price of purchasing those same residential units has dropped by nearly the same amount.

From a financial perspective, direct comparison of the two Middle Neck Road properties clearly illustrates this trend. While the rental townhouse will cost the tenant $1,795 per month, today’s rock bottom sale prices and historically low interest rates mean that the Middle Neck home for sale can be had for $410 per month less than the rental. And perhaps even less than that.

Numbers provided by Primary Residential Mortgage (PRM) of Millersville show that a conventional loan with five percent down and no mortgage insurance will result in a monthly principal, interest, taxes and insurance (PITI) payment of $1,385 for 2711 Middle Neck Road. Moreover, the interest rate on the loan is 4.125 percent, a number that PRM Mortgage Officer Greg Carll says is conservative, and probably can be lowered for many buyers.

“Although the mortgage industry has experienced significant and much-needed reform, there are still some fantastic financing options available for well-qualified buyers,” Carll said. “It’s paramount that you walk through the homebuying process with someone you can trust and will take the time to explain your options to you.

For buyers of 2711 Middle Neck who prefer a lower down payment, Carll says PRM can offer a 30-year fixed FHA loan, requiring a 3.5 percent down payment ($8,015), yielding a monthly PITI payment of $1,621. The 3.875 percent interest rate on this loan also is a conservative figure, Carll noted, and might be lowered for many buyers.

Of course, as most homeowners know, the effective amount of these mortgage payments can be even lower, given that most homeowners can deduct the cost of mortgage interest and property taxes from their annual income tax bills.

Plus, it’s important to remember that rental tenants never see their rent money again, while homeowners making monthly mortgage payments continue to build equity in their properties—notwithstanding the loss of equity that can occur when housing markets tumble, as they have in recent years.

The sum of these factors means that in the current Piney Orchard housing market, buying a home similar to the Middle Neck Road properties makes much more financial sense than renting. While the level of savings may not be as dramatic in every case or in every section of Odenton, a firm trend of increased value for local homebuyers has been established and should stay in place for a while.

For more information on the advantages of buying vs. renting residential properties, contact Greg Carll of Primary Residential Mortgage (410) 215-4163 or Jerry Kline of Keller Williams Flagship Realty.

Jerry Kline is a Realtor with the Odenton, Md., office of Keller Williams Flagship Realty (1216 Annapolis Rd., Odenton.) For more information on the local real estate market, contact him at (443) 924-7418, or visit his blog (www.JerryKlineRealtor.wordpress.com) or website (www.JerryKline.kwrealty.com).

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

John May 09, 2012 at 01:07 PM
Good Lord Jerry - now I have to tell you to put the Kool Aid down. Lol. Savvy investors? This is NO disrespect to the owners of that house at all, but I'd hardly call a savvy investment something that hasn't gone up in value for 9 years...or something that's not liquid. If they tried to sell that house, it might not sell for years. If all you get from renting out is enough to cover your mortgage - you make zero. It's like putting money in a shoe box.
Brian C. May 09, 2012 at 01:47 PM
@John The math says that it was a great investment. 223k - 44k ( 20% down) = 179k mortgage. Now after 9 years of paying on the mortgage they owe approx 150k. on a property that will sell all day long at 200k. Simple math tells me they are liquid to the amount of at least 50k. If the house sold for 225k they would have at least 75k sounds good to me. Again they have an appreciating asset not just an empty shoe box. For example let just say the price of the home over the next 10 years stays the same. ( not likely) The mortgage at that time will be approx 90k so at a minimum they will have 135k of equity there. again sounds like a no brainer to me. Sounds savvy to me. Where else in today's economic climate will you find this kind of return. Especially since someone else is paying the mortgage for them. (The renter) Why would someone pay more to rent the same place they could buy for less monthly payment? Even if after 5 years you sell the house for what you paid for it, you are ahead of the game. At a minimum you paid less to live there and you got to take the tax write off for your mortgage interest. There are certainly some situations that warrant renting but if you can afford to buy, it makes $ince to do it.
John May 09, 2012 at 02:01 PM
All homes are appreciating assets? I'd Google around the news if I were you. Question: If someone buys a home at $300K and it's now worth $250K, how much did they make? If you bought at house at 250K and 8 years later put it on the market for $260K but no one buys it, how much did they make? You might just want to talk to a friend of mine who bought a single family home for $310,000. He had to sell over a year ago but it's now worth $280,000. And that would be great...except it's still not sold. This may come as a complete shock to you (I know) but millions of people in this country have lost value on their homes that they'll never recover. If you pay $200K for something that ends up being worth $150K, then....we'll you do the math.
Brian C. May 09, 2012 at 03:43 PM
Ok I guess we can spin numbers any way we want to. So I will. ALL homes are not appreciating assets. Most homes are. Historical data shows that. In Anne Arundel county in Jan 2002 the median Price of a home was $169,950. Ten years later in Jan 2012 the median price of a home is $275,000. Sounds like an increase to me. My source is Maryland Association of Realtors. If you bought a house at 310k and havent sold it yet then you havent lost anything. If you are still living there, you are paying the mortgage. If I have to pay a mortgage I would choose to pay mine not someone elses. To answer your question "If you bought at house at 250K and 8 years later put it on the market for $260K but no one buys it, how much did they make? " ....they made nothing and they lost nothing. But they are worth the perceived value of the home minus the debt owed. This may be a shock to you...millions of people bought their homes wrong or bought homes they could NOT afford. Now they are paying the piper for their bad decision. House is a safe investment when bought properly. People need ot live somewhere.
Jerry Kline May 09, 2012 at 09:57 PM
Tim, Yours is an excellent question. Here's a response from Greg Carll of Primary Residential Mortgage, the lender quoted in the story: "As a correspondent lender, PRM has access to the product portfolios of 10 different mortgage investors. One of the programs we can offer is a 5 percent down conventional loan where the monthly mortgage insurance (PMI) is eliminated one of two ways. It can be paid for with a single premium, one-time buy out due at closing. Or, it can be paid for by the lender by increasing the interest rate about 0.25 percent. The expense of these options depends entirely on the borrower’s credit score. For buyers with excellent credit and available cash for the home buying process, this loan program represents a fantastic alternative to an FHA loan. As always, anyone looking to purchase a home should contact their lender and determine which loan program is the right choice for their unique situation."

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