Rent Vs. Buy: The 25-Year-Old Lawyer With a Boyfriend

by Shilpi Paul

Rent Vs. Buy: The 25-Year-Old Lawyer With a Boyfriend: Figure 1

In our third test drive of the Rent vs. Buy calculator from The New York Times, UrbanTurf is crunching the numbers for one of our readers.

Before we get to the details, a quick refresher as to how the calculator works. Users input their monthly rent and their desired home price point, in addition to a slew of variables like down payment amount, probable mortgage rate, property taxes, condo fees and the rate of home value appreciation and rent increases in their area. The calculator then creates a graphical representation of the time it takes for one to break even on their investment, and the return on that investment going forward. The calculator also lets you compare figures across a theoretical number of years lived in the property, so you can see the cumulative savings or loss.

The tool is not perfect, though, primarily because it does not allow you to enter a variable home price appreciation or rent increase percentage. In other words, if a user enters a home price appreciation rate of 5 percent a year, that level of appreciation is assumed for the entire period of the loan. Similarly, other variables, like increasing condo fees, are not taken into consideration in the analysis.

Our first case was a young woman who was putting 10 percent down and using conventional financing. Next, we looked at a 32-year-old journalist with a smaller budget who was using FHA financing.

Check out our third potential buyer, an UrbanTurf reader, and the three different scenarios, based on varying home price appreciation and rental rate changes, below. If you want to give the calculator your own test, click here, and if you want us to include you as our next subject, email us at editor2013@urbanturf.com.

Colin — 25-year-old lawyer living with his boyfriend

Colin, a lawyer, and his boyfriend, a recruiter for the government, are currently paying $2,800 per month to rent a unit in Woodley Park. They are considering buying a two-bedroom in Columbia Heights, Shaw, the H Street Corridor, Eastern Market or Capitol Riverfront, and have a budget of $550,000. They can put down 10 percent of the total price, or $55,000.

Here are some of the other variables that we incorporated into the scenarios below:

  • Condo fees: $300 a month
  • Annual renovation costs: 0.5 percent of the purchase price
  • Annual maintenance costs: 0.5 percent of the purchase price
  • Homeowner’s insurance rate: 0.5 percent of the home’s value

Scenario #1

Our first scenario assumes a home price appreciation of 1 percent a year, and a rental rate increase of 3 percent a year. Assuming these numbers, it would take Colin about 7 years to break even on his investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

Rent Vs. Buy: The 25-Year-Old Lawyer With a Boyfriend: Figure 1

Scenario #2

Our second scenario assumes a home price appreciation rate of 2 percent a year, and a rental rate increase of 2 percent a year. Assuming these numbers, it would take Colin 5 years to break even on his investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

Rent Vs. Buy: The 25-Year-Old Lawyer With a Boyfriend: Figure 3

Scenario #3

Our third scenario assumes a home price appreciation rate of 1 percent a year, and a rental rate increase also of 1 percent a year. Assuming these numbers, it would take Patrick 8 years to break even on his investment, according to the calculator. A graphical representation of the rent versus buy breakdown for this scenario can be seen below.

Rent Vs. Buy: The 25-Year-Old Lawyer With a Boyfriend: Figure 4

This article originally published at https://dc.urbanturf.com/articles/blog/rent_vs._buy_the_28-year-old_lawyer_with_a_boyfriend/6920


  1. Nat said at 6:12 pm on Friday April 12, 2013:
    Hmm... Why do your calculators always seem to assume such a low rent increase each year? I'm in a rent controlled building and my rent still goes up about 5% annually (inflation + about 3%, generally). Units near me that aren't rent controlled easily jump 5-10% after the first year-- just as an example, my friend's studio jumped from 1700/mo to 2050/mo for her second year, effectively forcing her out. These calculators also assume you're going to stay in the same rental for X years... Rarely the case in DC.
  1. The Editors said at 6:19 pm on Friday April 12, 2013:
    Nat, We used rental rate increases of 1, 2 and 3 percent a year for this specific exercise after having conversations with a few people that analyze the rental market in the DC area, who noted that the new supply of rentals will result in lower rental rate increases in the coming years. The Editors
  1. Com said at 6:25 pm on Friday April 12, 2013:
    The other thing this calculator seems to neglect is a signif upgrade when buying. Ex: renter living in studio currently to save money, but anticipating buying a 2 bedroom. Of course the monthly rate (lease vs mortgage) is going to go up, maybe even more than double. But in 2 bedrooms that same person has ability to bring on a renter to decrease monthly cost to self. (Just an example.) So, monthly out-of-pocket may even be less in the 2 bdrm.
  1. CH said at 6:51 pm on Friday April 12, 2013:
    Why are you assuming such high maintenance costs if they're going to be buying a condo? $2750 a year for maintenance of their individual condo (walls-in) and not the maintenance of the condo fee already covered by the building? Same with renovation costs. $2750 a year in a condo? Seems a bit much. My HOA policy on a 700k condo is under $350. That's 0.05% and again you have it at 0.5%.
  1. 20011 said at 6:58 pm on Friday April 12, 2013:
    If they can only afford 10 percent down on a $500k place they can't afford to buy it, simple as that. Save up your money by moving into a less trendy neighborhood.
  1. Jim said at 7:05 pm on Friday April 12, 2013:
    <i>If they can only afford 10 percent down on a $500k place they can’t afford to buy it, simple as that. </I> It's not that simple. They have a decent salaries. Affordability is based on cash flow, not savings. Maybe they had a hoard of cash, and paid off their student loans? With interest rates as low as they are, even after PMI, maybe they decided to keep their cash. Available cash down is not an accurate measure for a 25 year old.
  1. Jeremy said at 7:06 pm on Friday April 12, 2013:
    I suspect that some of the parameters in this calculation are off, erring in favor of renting. In particular, the marginal tax rate for even a young, underpaid lawyer should be at least 25%, but 28% is more likely. Being unmarried, his state taxes alone probably already exceeds the standard deduction, so his effective deduction would be at the marginal rate. Add to that the state income tax rate, and you're looking at at least 33%. The default in the calculator is 20%, which seems to be what is used in these calculations. Changing only that field, scenario 1 goes from barely over 6 years to just under 5 years for the break-even point. Scenario 2 drops from 4.5 to 3.5 years. And scenario 3 drops from 8 to 5.5 years. I may be misinterpreting how to use the calculator, so please correct me if I'm wrong.
  1. Scott said at 7:17 pm on Friday April 12, 2013:
    @CH, I really don't consider the maintenance costs included in the calculation to be out of line with what a condo owner would pay annually. I just replaced the A/C and heating unit in my 2-bedroom, a $5,000 outlay. With the calculations in this article, that would amount two years of maintenance costs (more or less) and would assume that no more maintenance/upgrades were needed on the unit during that period.
  1. CH said at 7:42 pm on Friday April 12, 2013:
    @Scott An A/C-Heating system is one of the most expensive repairs in a condo. And a new unit should last at least 7-10 years. In my prior condo, the heating unit was 20 years old before it gave out. Other replacements/repairs (Washer/Dryer, Hot Water Heater, kitchen appliances) are much lower in cost. I can see the occasional big bill (5-6k), but that will be every 5 years or more. The other years will average well under 1,000. @Jeremy, I completely agree. The average young lawyer at a big firm is making 160k (before bonus) to start, and there salary goes up each year. They will quickly be at the 33% bracket. But I think to be safe, you may want to cap it at 28% as that is in line with the president's proposed cap on deductions.
  1. Justin S said at 8:33 pm on Friday April 12, 2013:
    "Why do your calculators always seem to assume such a low rent increase each year?" Nat, There's an incorrect assumption that rents and home prices move at different rates. Historically, they don't. They're always about the same, though the curves can be a few years out of sync. It's possible for rent to jump faster than home prices (or vice-versa) for a year or two, but in the long run (as in a 30 year mortgage) they're usually about the same. Additionally, home expenses and rents alike can't sustainably appreciate faster than inflation without some kind of major societal financial restructuring... like (reasons aside) it became "normal" for people to spend 70% of their income on housing.
  1. Caroline said at 8:44 pm on Friday April 12, 2013:
    Where's the PMI? They'll have to do FHA if they only have 10% to put down.
  1. Wes said at 8:48 pm on Friday April 12, 2013:
    Condo fee should be $500/month.
  1. Jason said at 9:05 pm on Friday April 12, 2013:
    The only thing that makes buying attractive anymore are the perks of owning, government policy that favors renting money instead of renting property, historically low interest rates, and the fact that unlike other investments available to the middle class, buying real estate can be financed cheaply. If I could borrow $500,000 at 4% to put in my stock portfolio, deduct the interest from my income taxes (reducing the cost of borrowing to about 3%), and just keep renting, I'd probably come out way ahead and my portfolio can be way more diverse than the "investment" in my home.

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