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Renting Vs. Buying in the Coachella Valleyby Joshua Marquis

DRE # 01465416July 29th 2009

This article was inspired by some recent findings that the California Association of Realtors

published. They stated a case for buying versus renting by using averages on a statewide level. What Ihave attempted to do in my short article here is to use local data to provide a more accurate picture ofrenting versus buying in the Coachella Valley.

Data for this article was pulled from several reputable sources including Bankrate.com, TheLocal Board of Realtors MLS and Muninetguide.com. I used the following criteria to formulate thedata you will see in the two tables below.

The average rent for the second quarter of 2009 for a 3 bedroom 2 bath Home, Duplex, Condoor Townhouse was $1402 per month. There were 96 properties according to the Desert AreaAssociation of Realtors MLS that leased under these criteria in the second quarter.

The average sale price for a 3 bedroom 2 bath Home, Duplex, Condo or Townhouse was$164,132. There were 716 sales that took place in the Coachella Valley according to the same MLS.Both of these searches included Desert Hot Springs and Palm Springs in the west end of the valley andall cities from there east to Thermal.

The average income per household in the Coachella Valley is $57,434.11 annually. Thefollowing data was used to come to that conclusion according to census data that had been indexed forinflation as provided by Muninetguide.com.

City Median Income

Cathedral City $43,792Desert Hot Springs $36,379Indian Wells $110,479Indio $47,708La Quinta $72,452Palm Desert $51,999Palm Springs $43,615Thousand Palms $40,169Average $57,434.11

The first table displays the tax benefits of buying a home in comparison with those of renting.This is done to display the benefits over a 5 year period and assumes the buyer is a first time homebuyer and would receive the 2009 $8,000 first time home buyer tax credit. It is also assumed in thistable that the purchase price of the sample home is the valley wide average $164,132, a mortgage at5.44% which was average as of July 28th, 2009 according to Bankrate.com, property taxes at 1.25%,Federal Income Tax rate of 15%, State Income Tax rate of 9.3% and a 20% down payment on the housetotaling $32,826.40.

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According to the table above a first time home buyer would save nearly $6,000 in tax savingsover 5 years.

The next table illustrates the cost savings over 5 years for a buyer. These numbers all assume a20% down payment on the home purchase so I added a third table to illustrate the cost savings with nomoney down as well even though it results in a higher monthly payment.

The costs associated with ownership and renting as displayed below assume $1200 a year forhome owners insurance and property taxes amounting to $2,051.65. For renters insurance the standardaccording to the California Association of Realtors for their study was $20 per month.

Tax Benefits Renting Vs. Buying 5 Year Analysis

Buyers Renters

Years 1-5

Household Income $57,434.11 $57,434.11 $57,434.11 $57,434.11 $57,434.11 $57,434.11

n/a n/a n/a n/a n/a $10,700.00

$7,098.87 $6,999.12 $6,893.81 $6,782.62 $6,665.23 n/a

$2,051.65 $2,051.65 $2,051.65 $2,051.65 $2,051.65

Total Deductions $9,150.52 $9,050.77 $8,945.46 $8,834.27 $8,716.88 $10,700.00

Total Taxable Income $48,283.59 $48,383.34 $48,488.65 $48,599.84 $48,717.23 $46,734.11

State Taxes Owed $4,490.37 $4,499.65 $4,509.44 $4,519.79 $4,530.70 $4,346.27

Fed Taxes Owed $6,568.98 $6,582.55 $6,596.88 $6,612.01 $6,627.98 $6,358.18

$8,000.00 n/a n/a n/a n/a n/a

Total Taxes Owed $3,059.36 $11,082.20 $11,106.33 $11,131.79 $11,158.68 $10,704.45

$47,538.36 $53,522.24

Year 1

2009

Year 2

2010

Year 3

2011

Year 4

2012

Year 5

2013

Standard IRS

Deduction - MarriedFilling Jointly

Mortgage InterestDeduction

Property TaxDeduction

1st Time Buyer'sCredit

5 Year TotalLiability

Save$5983.88over 5Years

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You will note that under the 20% Down table I noted that even with the 20% down paymentthe cost saving would mean a break even point in 6.67 years. The cost savings would then startimmediately as described. Even with no money down and a higher mortgage payment the savings over5 years equals well over $13,000.

While the tables above describe in real numbers some of the financial benefits of buying versuscontinuing to rent, what can not be quantified are the non-financial benefits. Homeowners in general,according to the California Association of Realtors article experience social benefits such as educationand civic involvement, as well as lower crime rate and welfare dependency. Pride of ownership and aplace to raise a family, live, work and retire are all a part of the American Dream and a price can neverreally be put on those things.

Out of Pocket Cost 20% DownBuyer Renter

Mortgage Payment / Rent $740.60 $1,402.00

$270.97 $20.00

Totals $1,011.57 $1,422.00

Monthly Savings $410.43

$4,925.16

Over 5 Years $24,625.80

20 % Down = $32,826.40

6.67 Years

Out of Pocket Cost $O DownBuyer Renter

Mortgage Payment / Rent $925.75 $1,402.00

$270.97 $20.00Totals $1,196.72 $1,422.00

Monthly Savings $225.28

$2,703.36

Over 5 Years $13,516.80

Taxes & Insurance /Renter's Insurance

Annual Savngs

Years to Break Even afterDown Payment

Taxes & Insurance /

Renter's Insurance

Annual Savngs