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The Cost of Buying, Revisited

by Shilpi Paul

Earlier this month, we took a stab at calculating the difference in monthly costs associated with buying a $545,000 condo in DC versus Virginia. Based on the requests of a few commenters, we’ve decided to revisit the comparison (using the same married couple), this time folding in Maryland and adding a couple more cost considerations.

We added a column for Maryland, assuming a condo in North Bethesda, which joins the unit in Clarendon and the one in DC. For the sake of our comparison, we still assumed a 20 percent down payment with an interest rate of 4 percent over 30 years, although we recognize that loans above $417,000, known as high balance loans, usually come with slightly higher interest rates. We calculated the closing costs using Federal Title’s Quick Quote calculator (this number may vary from title company to title company). Our income tax rates came from here, our property tax information for Virginia from here, for DC from here, and for Maryland from here. We also took into account the Homestead Exemption for DC residents, which lowers the assessed value of the home by $67,500 for tax purposes.

Our “Taxable Income” line exists for the purpose of comparing the different state income tax rates. Of course, taxes are complicated and your own taxes will differ depending in deductions, dependents and other factors.

The Cost of Buying, Revisited: Figure 1

It appears that DC is the most expensive place to buy while you get the most bang for your buck in Maryland. However, some real estate agents believe that condos appreciate quicker and are more likely to hold their value in DC than in Maryland or Virginia, which may justify the extra cost of buying in DC. Also, lenders tell us that it is cheaper to refinance in DC than in Virginia. A few other factors would change the monthly costs, like differing insurance rates, city taxes (like Takoma Park’s), Virginia’s car tax, and the cost of commuting, so use this as an introductory, but handy starting point for comparisons.

Commenters, what other factors could we add to this chart?

This article originally published at http://dc.urbanturf.com/articles/blog/the_cost_of_buying_revisited/5281

11 Comments

  1. Jason said at 7:40 pm on Friday March 16, 2012:
    Is there a way you could create various tables like this for smaller downpayments? Say 5, 10, 15%? Thanks.
  1. Boyan Dimitrov said at 10:43 pm on Friday March 16, 2012:
    DC also has a 5K first time homebuyers tax credit. So it needs to be added into the equation as well. It is recorded on federal Form 1040.
  1. David said at 2:29 am on Saturday March 17, 2012:
    The Maryland figures for property tax and state income tax have got to be higher. Can you provide your calculations?
  1. df said at 5:09 am on Saturday March 17, 2012:
    This is a useful starting point, for sure. But as the writer concluded, other variables such as Maryland city taxes, Virginia's car tax and the cost of commuting will minimize much of the differences in the cost of buying in the 3 jurisdictions. One other factor not mentioned is the additional savings an itemizing filer may gain on his/her federal taxes by virtue of a greater DC state income tax deduction, if indeed there is one. In the final analysis, the cost differences are probably de minimus, and of much less importance to a buyer than the usual individual factors such as budget and affordability, neighborhood and life style preferences, and quality of life considerations.
  1. VA resident said at 6:51 pm on Saturday March 17, 2012:
    Maryland lets counties impose an income tax, with Montgomery County imposing a rather massive 3.2% income tax. That changes the Maryland numbers pretty significantly. http://individuals.marylandtaxes.com/incometax/localtax.asp The higher your income, the more VA makes sense. If you are a renter and have a high income, VA is massively cheaper. This is why the law firm associates rent/buy condos on the Orange Line corridor.
  1. Steve Sushner said at 9:05 pm on Saturday March 17, 2012:
    Your facts are both off and misleading. First, you have Montgomery county property taxes way off (they are not that low). Second, you draw an odd comparison of Maryland and Virginia. Arlington has the lowest property taxes of every county in NOVA and Montgomery has the highest of every county in the MD suburbs (each is an outlier and should not be used to compare the entire state- at a minimum you should add PG and Alexandria to your math). And, how odd to include income tax and exclude Virginia's car tax.
  1. Shilpi said at 10:29 pm on Saturday March 17, 2012:
    Commenters, Thank you for the thoughts regarding the chart, and about Maryland's property tax and income tax numbers. We are taking another look at the numbers and will respond with what we find. Best, Shilpi
  1. Adrian Hunnings said at 12:21 am on Sunday March 18, 2012:
    I am sorry that you drop the commuting costs from the equation. And I don't think you should assume the job location is downtown DC. Commuting costs, in terms of avalibility of metro vs car, gas, parking, time, frustration should be a major points of consideration in anyone's purchase or rent decision. Your chart shows that a person living in Arlington, and working in Maryland is taking on far more commuting cost than other real estate related cost factors would justify. Even if you assume the person is commuting to DC by metro, what is the value of the person's time and frustration. Surely it is more than $2.50 per day per way allocated in your previous evaluation.
  1. Bryan said at 3:07 am on Monday March 19, 2012:
    Please let me know which condos have a condo fee of $300.00. Most condo fees which I have seen are in the $600+ range not including any utilities.
  1. Jim said at 2:33 pm on Monday March 19, 2012:
    I thought this was a great comparison. I do think that commuter costs are so variable for every family, that they should continue to be omitted. Leave PG out; it's simply not on the short list for most people. I think a deeper dive should be taken into take home pay after housing. You're assuming $150k salary. What's actually left in one's monthly paycheck after after itemizing interest deductions (4% interest, first 3 years of ownership) and City + State taxes? It should be a fairly straight forward calculation and will likely tell a more important story. What really struck me was the DC Stamp Tax which I assume factors so highly into the closing cost differential. DC is still trying to suck every dime out of new residents to pay for old residents profligacy. However, the real problem is that it creates a huge budget swing (and gap) when the economy sours cyclically. It's similar to the over-reliance on taxation of investment gains by HNW individuals: it's great in the good times, but creates a massive swing in bad times --just when you need money the most.
  1. Mark Wellborn said at 5:19 pm on Thursday March 29, 2012:
    Readers, Despite crunching the numbers and vetting the calculations with a number of real estate professionals for this article, we mistakenly calculated the Maryland property tax and income tax for the chart. We will take this hiccup into account if and when we decide to publish a similar comparison in the future. Mark Wellborn Editor

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