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Rent vs. Buy in Denver

Is it better to rent or buy in Denver?  The answer is yes and no.

We ran some sample calculations using the NY Times Rent Vs. Buy calculator and plugged in some Denver home owner statistics to find some Denver rent vs. buy statistics to share with you.

Let’s start with 1 bedroom rent vs. buy

Right now, the average price of a 1 bedroom condo is $173,000.  Of course there are cheaper and pricier locations but this is the median price of a 1 bedroom condo in the Denver metro area.  Because condo prices are stagnant I don’t expect there to be a positive or negative change in condo value for the next couple years.  3 years from now when developers start building condos again there will most likely be a drop in value, so let’s just keep the median price at a zero percent change for the next 7-10 years.   For a rental equivalent to a $173,000 condo you’ll expect to pay at least $1200 rent  for a 1 bedroom when you factor in a garage which most condos at $173,000 will have.   Note that you can vary numbers and come up with your own statistics, but I’ve ran the numbers for condos in many price ranges and they are all coming out with a similar result.

You must keep your 1 bedroom condo in Denver for at least 14 years to save money when factoring rent vs. buy.

Some variables you can use are property tax at .5%.  Also use some advanced settings to factor in your HOA dues ($200 or more), cost of buying a home (4%), Cost of selling home if you have to leave before your 7th year (5%), 30 year mortgage,  10% down payment, 2% inflation rate.  I included the 5% cost of selling home because if you have to sell in your 8th year of ownership that is a very important cost  to factor in.  At best for 1 bedroom condo rentals I came up with 6 years, if you get an amazing area in an up and coming neighborhood and the neighborhood does really make it up. rent vs. buy

Now let’s consider 2 bedroom apartment rent vs. buy

The average 2 bedroom condo sale price this year is $250,000.  The lowest active listing I found was $89,000 and they go up into the $500,00-$1,000,000 range in the more upscale locations.  Using similar variables to our 1 bedroom experiment except that we are going to give a 1% variable on the Annual home price change because it’s much easier to sell a two bedroom condo vs. one bedroom condo.  Rent you can expect to pay for a condo that is equivalent to what you would pay $250,000 for is $1700 and may or may not include a garage.  This result is more promising with buying being better after only 5 years.

Finally, let’s consider a three plus plus bedroom rent vs. buy option in the Denver metro area.

The area median home price for the Denver Metro is $290,000 as reported by the Denver Post.  A three bedroom rental is going to cost around $1900 for something that is equivalent to a $290,000 home price.  This experiment is tricky, so it’s best to start researching how big of mortgage you can qualify for, see what you can buy in the area you desire, and then search for rentals.  This is where a real estate expert like Jane Hannen who does both rentals and sales come in handy.  Please contact me for her contact information or use the contact form on this site.  For variables I left the $200 association fee as it’s common and recommended to live in a planned unit development to ensure your neighborhood is well kept.  If you stay in your home for 6 years, buying is better.  There are so many variables with a 3 bedroom rent vs. buy analysis that I  cannot stress the importance of consulting with an experienced real estate agent like Jane.

In conclusion, a one bedroom condo is not a good purchase unless you are a long term investor and there is no possible way you will leave Denver in the next 14 years.  Two bedroom rentals are slightly better investments at only 6 years but this is contingent upon another 4-5 years of no new condo development.  Condo development is at a standstill in Denver and has been for the last 2 years, but pent up demand may be on the horizon in 2-3 years which would drive down the price of existing 2 bedroom condos in the Denver metro area.  Three bedrooms are really better to buy when you have settled down and have no plans to leave the area for 6 years and it’s imperative to seek the advice of an experienced real estate agent.

Want to learn more?

We’ve compiled some handy links to help you do your own rent vs. buy analysis for Denver

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

http://www.bankrate.com/calculators/mortgages/rent-or-buy-home.aspx

This is a good site to tell you not only what you would qualify for, but if it’s a smart decision based on your financial situation to rent vs. buy.

http://www.trulia.com/real_estate/Denver-Colorado/market-trends/

Denver market trends

By Brandon, Owner, Apartment GuyZ

Brandon has been finding Denver rentals for renters in Denver for over 13 years, and have been a licensed Colorado real estate agent for over 15 years. This gives me unique insights that most real estate agents focusing on either rentals or sales will not have.