Buy Versus Rent: Moments of Lucidity in Coral Gables Real Estate

posted on January 17th, 2010 filed under: Real Estate News

The cost of owning a home in Coral Gables (or anywhere) is generally about 10% of the purchase price annually.  The cost of renting the same or similar property in Coral Gables historically has been about 7%-8% of a property’s market value.  In recent years, the cost of renting has typically been running at about 5% of a property’s market value — making it economically irrational to buy.

The combination of falling prices, unusually low interest rates and generally stable rents has narrowed the spread for some Coral Gables properties.  In the low-to-mid-priced market segments where values have fallen, and with 5% interest rates making the cost of ownership more like 9% than 10%, some properties are now listed for sale at prices that are not far from normal compared to rental prices.  For example, one property is listed for sale at about $900,000 or for rent at about $60,000 annually.  The rental price is about 6.67% of the sale price, or put differently, the sale price is 15 times the rental price.  That’s not extreme.  And the rental price is not arbitrarily high — it actually rented for about that much in the recent past.

This is not to give the Coral Gables real estate market a clean bill of mental health.  For many properties, the purchase price remains about 20 times the annual rental price — way above the historical 12-to-14 times.  One property was recently listed for sale at about $1 million or for rent at about $50,000 annually, and another for sale at over $600,000 or for rent at about $35,000 annually.

But at least the real estate market in Coral Gables is displaying moments of lucidity.

The luxury segment of Coral Gables real estate is still in its own private Idaho on a buy-versus-rent basis.  Luxury properties are still much cheaper to rent than to buy.  Prices have not fallen as much and interest rates are not as favorable.  One Gables manse can be bought for over $8 million or rented for under $250,000 annually.  Another is for sale at about $2.5 million or for rent at about $100,000 annually.

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posted by // This entry was posted on Sunday, January 17th, 2010 at 8:46 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed.

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