BusinessWeek comes out with a Top 10 list of best places to buy vs. rent. This is their formulation in their words:
“To create a fair match-up between owning and renting, we calculated ownership costs assuming a fixed 30-year loan for 100% of the purchase price with no down payment. If they had instead decided to factor in a 20% down payment, owning would have been the cheaper option for the top 10 metros on our list.”
BusinessWeek Best Places To Buy Problem
The problem I have with this list is that I don’t see the words “Honolulu”, “Newport Beach,” “Malibu”, “San Francisco”, or “Paradise”! Everywhere one wants to live is expensive, and everywhere one doesn’t really prefer to live is cheap. Things are cheap for a reason, and real estate is no different.
Think about prime real estate sitting a top a triangle. The triangle’s base always gets wider as demand continues to grow. Meanwhile there’s only one prime location. Is it no wonder why Realtors always talk about “location, location, location”? You can also think of your sub-prime location as an inverted triangle ready to topple over. Only a very few want to buy, and the supply is overwhelming.
During this real estate correction, you’ve seen expensive areas such as San Francisco correct 15-20% from the peak, however, drive out 1 hour east and places such as Antioch and Pittsburgh have gotten crushed by 40-60%.
If you’re an investor, focus on places where you’d actually see yourself willing to live in. After all, if you wouldn’t want to live in your property, why would someone else?
A similar purchasing analogy can be made with cars. You may think that someone buying a limited production Lamborghini Gallardo Spyder for $210,000 is foolish with his money.
But, after one year later, he’ll sell that Lambo for more, or at the least recoup more than if he had bought a brand new Ford Expedition for $48,000. Obviously this example is extreme here, given most don’t have $200K to splurge on a car, but you get my point.
Things are cheap for a reason. Only if you have the financial means, and are already living in one of these 10 cities should you consider buying. Otherwise, just focus on buying or renting in that tropical paradise in the best location possible.
Read more to see what paradise cities lie in BusinessWeek’s Top 10 list!