A Financial Analysis of Renting vs. Buying in Seattle (and more)

The decision to rent or buy is not an easy one.

There are many, many variables a person must consider when making this determination. Both options have their own unique benefits. If you rent, you will usually have fixed monthly costs, and certain costs – such as appliance repairs – will be the responsibility of your landlord or management complex. On the other hand, if you decide to buy, your money will build equity, and you will have a greater amount of freedom over your lifestyle and in how you use your property. 

To a large degree, the decision to buy or rent is very much a financial determination. Some people insist that buying is a better financial choice because of the fact that your money is better preserved in the form of equity. Others disagree and believe that you’re better off renting and placing your savings in other markets, such as the stock market or bond market.

In this post, we will contribute to this important discussion by looking at some numbers from 3 key real estate markets in the State of Washington: Seattle, Bellevue, and Tacoma. By looking at these numbers, readers will hopefully be able to make better decisions about whether renting or buying is desirable in their case.

Renting vs. Buying in the City of Seattle

The city of Seattle has undergone dramatic changes in the past few years. These changes have spread to the real estate market. Although the Seattle market has recently cooled down over the past 12 months and is expected to cool down further over the coming 12 months, Seattle saw big gains in years prior. Now, according to Zillow, the median home value in the city of Seattle is an impressive $714,100. This means that to put down 20% on a median value home in Seattle, a person will need a down payment of $142,820. That’s not a small figure! Of course, it’s possible to obtain a mortgage loan with less than 20% down; but, this figure is useful for giving a sense of the financials involved with buying a median value home in Seattle in 2019. 

If we suppose that a person who puts down 20% on a median size home in Seattle obtains a mortgage rate of 4.0% and that the mortgage loan is a 30-year fixed-rate loan, then that person will be looking at a monthly payment of around $2,727. And that’s not including other fixed costs associated with the home, such as home insurance, property taxes, utilities, and others. If we assume the same numbers – 20% down, 4.0% rate, and median value home – for a 15-year fixed-rate loan, the monthly payment for the mortgage alone jumps to approximately $4,226.

Now, let’s consider some numbers on rent in the Seattle area. These numbers are current for 2019. In Seattle, the average rent for a 1 bedroom apartment is $2,068; for a 2 bedroom apartment, the average is $2,683. These numbers may seem relatively high, and by comparison with other metro areas around the country, they are pretty high. But we have to remember that these rents will usually include some utilities, and renters don’t have many of the same fixed costs which are associated specifically with homeownership, such as property taxes, home insurance, etc. Plus, maintenance and repairs can add a lot to the financial burden when you own a home, and renters typically don’t need to worry about these things (unless they cause unnecessary damage).

To make the right decision on whether to rent or buy in Seattle, you will need to carefully consider these numbers. And remember, these numbers only represent the median and average for home purchases and rentals, respectively.

Renting vs. Buying in the City of Bellevue

If you’re thinking about renting or buying in the Bellevue area, be aware: Bellevue is even more expensive than Seattle. Bellevue is home to several big tech company campuses, and Amazon is currently in the process of creating a brand new headquarters in the downtown area. These and other developments have contributed to the relatively expensive real estate market. According to Zillow, Bellevue currently has a median home value of $903,900. This translates to a 20% down payment of $180,780 on a median value home. If we assume a 4.0% interest rate on a 30 year fixed mortgage, then you’re looking at a monthly mortgage payment of around $3,452 after a 20% down payment on a median value home. On a 15 year fixed mortgage, you’d like looking at a monthly payment of $5,349! 

Renting in Bellevue is also expensive, however. As of 2019, the average rent for a 1 bedroom in Bellevue is approximately $2,070, while average rent on a 2 bedroom is $2,690. Still, these numbers for renting seem attractive when we consider the payments a person can expect on a median value home in Bellevue. 

Renting vs. Buying in the City of Tacoma

The city of Tacoma is currently classified as a “hot” market by Zillow. Tacoma currently has a median home value of $314,000, and is projected to see an increase of 3.4% over the next 12 months. Many buyers have flocked to the Tacoma market after being pushed away by the much higher prices seen in Seattle and Bellevue. Tacoma is now home to many who commute to either downtown Seattle or downtown Bellevue for work. If you plunk down 20% on a median value home in Tacoma, you’ll be putting down $62,800. This is much more reasonable than the numbers we saw for Seattle and Bellevue. Monthly payments on a median home will be around $1,199, assuming the same 4% on a 30 year fixed mortgage. For a 15 year fixed mortgage, you’d be looking at a payment of $1,858 at the same interest rate on a median value home.

Buying in the Tacoma area may seem like the better option when we look at numbers for renting. As of 2019, the average rent for a 1 bedroom in Tacoma is about $1,370, while the average rent for a 2 bedroom is about $1,465. When we compare these numbers to the kind of monthly payment a person can expect on a median value home, we can see how it would be easy to make a case for buying. Of course, everything depends on your circumstances.

Wrapping It Up

The decision to rent or buy ultimately depends on the specifics of your situation.

You need to consider not only the typical prices in your desired community but also your own financial situation as well as your financial goals. As mentioned, many consider the equity in real estate to be a smart financial decision.

There may be evidence, however, that you can expect better returns if you place your funds in other investment markets. Based on the numbers, it would be very easy to make a case that it’s currently a wiser decision to rent in the cities of Bellevue and Seattle. But again, things will depend on your particular situation.