It's Cheaper to Buy -- Especially When 5-Bedroom Homes Cost $40,000

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"You want how much for this place?"

That's a common refrain in the real estate market, whether you're looking to buy or rent. Of course, places like New York, San Francisco, and Seattle have long been known as locations where wannabe buyers are quickly priced out of their homeownership dreams.

But the opposite is true in some surprising cities, where paying rent just doesn't make sense when cheap homeownership options are all around.

Down Payment vs. Security Deposit

According to the folks at real-estate website Trulia.com, in most of the top 50 U.S. cities, it makes more sense to buy a home than to pay rent month after month. Trulia's number crunchers found that the top five cities where it's cheapest to buy than rent are: Fresno, Calif; Mesa, Ariz.; Las Vegas; Detroit, and Arlington, Texas. But many others make the list, too, such as Philadelphia, Cleveland, Denver, San Diego, Washington, D.C., and Tucson, Ariz.

From New York to Omaha, here's a rundown of five cities where it's cheaper to buy than rent, and five where you're better off paying a landlord instead.

Thanks to foreclosures, in many places there's an increased supply of homes on the market. Couple that with ultra-low interest rates, and the scale tilts even more in favor of buying.

1. Las Vegas
Home to a neon museum and drive-through wedding chapels, Las Vegas tops the cheaper-to-buy list. If you're looking to work there, major companies headquartered in the city include MGM Resorts (MGM).

Typical rental prices range from $700 to $900 per month. Per Trulia, buying a home would lower your monthly outlay to less than $300 a month. The median home sale price there as of July was $115,200, down nearly 15% over year-ago levels. There are million-dollar homes there, but you can also get a 3-bedroom, 2-bath, 1,600-square-foot home for $49,000 -- which translates to about a $300 mortgage payment per month.

2. Detroit
Besides cars, Detroit is also known for its chili dogs with onions and for being the home of Rosa Parks, Aretha Franklin, and Robin Williams. Major companies based in the area include General Motors (GM).

Typical rental prices range from $700 to $900 per month. However, for $40,000, you might snag a 5-bedroom, 4-bath, 1,700-square-foot home with a monthly payment less than $250. Per Trulia, the median home sale price as of July was $65,000, down 9% over last year.

3. Atlanta
This city is easy to get to, as its international airport is the busiest in the world. Major companies based there include Coca-Cola (KO).

Typical rental prices range from $1,050 to $1,550. The median home sale price as of July was $192,500, up 3% over year-ago levels. For $115,000, you might buy a 3-bedroom, 1-bath, 1,200-square-foot home with a monthly payment less than $700.

4. Chicago
Chicago is home to Oprah Winfrey, movie critic Roger Ebert, and an annual Beatles festival, and it could be your home, too.

Rent in the Windy City will run you around $1,450 to $1,950. But for $220,000, you might buy a 3-bedroom, 2.5-bath, 1,500-square-foot home with a monthly payment of $1,300. Per Trulia, the median home sale price as of July was $211,000, down 15% over year-ago levels.

5. Minneapolis
Enjoy this city's 170 parks in the summer and go ice-fishing nearby in the winter.

Typical rental prices range from $1,050 to $1,550. You can trim that monthly tab by buying. Per Trulia, the median home sale price as of July was $155,000, down 7% over year-ago levels. For $225,000, you might buy a 4-bedroom, 1.5-bath, 1,700-square-foot home with a monthly payment around $1,300.

5 places where you're better off ponying up for rent
Home ownership can be costly. Besides the mortgage, you've got taxes, insurance, repairs, and upkeep. Renting a place to live instead of buying one can often seem like a good deal. It actually is, in several major U.S. cities.

Despite the many cities offering compelling home purchases, there are still some metropolises where it remains cheaper to rent.

1. New York
Less than a mile wide at Manhattan's narrowest point, New York will be home to the largest Gothic cathedral in the world whenever the Cathedral of St. John the Divine is finished. (It was started in the 1800s.) There are plenty of finished homes for sale there, though.

The median home sale price as of July was $1,080,000, up 3% over year-ago levels. Rents here range from $3,150 to $3,650. But for $2,000 per month, you might find a 1-bedroom, 1-bath 850 square-foot apartment on West 42nd Street.

2. Fort Worth
Appropriately, given the city's name, 60% of America's paper money is printed in Fort Worth. Major companies based in the area include American Airlines parent AMR (AMR).

The median home sale price as of July was $100,500, up a whopping 18% over year-ago levels. Typical rental prices range from $700 to $900.

3. Omaha
Omaha is the home of the College World Series and Warren Buffett's Berkshire Hathaway (BRK), which owns, among many other things, Borsheim's and Nebraska Furniture Mart -- the largest jewelry and furniture stores in Omaha and the United States, respectively. Other major companies based there include Union Pacific (UNP) and ConAgra (CAG).

The median home sale price as of July was up 10% over year-ago levels, currently sitting at $176,000. Typical rental prices range from $700 to $900.

4. Seattle
Some think of Seattle as rainy, but it gets less rain, on average, than Boston, New York, or Houston. Major companies based in the area include Amazon.com (AMZN) and Starbucks (SBUX).

The median home sale price as of July was $340,000, down 10% over year-ago levels. Typical rental prices range from $1,250 to $1,750.

5. San Francisco
Fortune cookies were born in San Francisco, and its cable cars are the nation's only moving National Historic Landmark.

The median home sale price as of July was $676,000, up 4% over year-ago levels. Typical rental prices range from $2,850 to $3,350.

Whether you buy or rent, do so having crunched some numbers, to make sure you're not disregarding the better strategy.

At Trulia, you can get more info on each of the cities, such as their unemployment rates, foreclosures, job growth, and job competition.

Longtime Motley Fool contributor Selena Maranjian owns shares of Berkshire Hathaway, Coca-Cola, and Starbucks, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Berkshire Hathaway, Coca-Cola, and Starbucks. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, GM, Starbucks, Amazon.com, and Coca-Cola.

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13 Comments

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Gina Johnson

Nice article! I just bought an apartment in Arlington, Texas, at very good price thanks to http://www.apartmentsarlingtontexas.com/ Good luck!

9 hours ago Report abuse rate up rate down Reply
bdgrizcp

The article overlooks south Florida completely, where home prices are crashing--once you get west of US1. Homes on/adjacent/close to tidal water are rising off their lows, but there are decent (not great) neighborhoods where, due to overbuilding and/or foreclosure, prices are crashing.
Of course the real waekness down here is jobs, i.e., the lack of same. And then there's the overpriced rental market. Due to the transient nature of the market, rents are up with the exception of distressed condo rentals.
I guess that makes SFL pretty much what it was 28 years ago when I first relocated here: retirement, recreation, vacation.

August 23 2011 at 7:35 AM Report abuse rate up rate down Reply
shaunnj

Clearly little research was done about New York. New York is more than Manhattan; you can find apartments to buy for less than $100000 throughout the boroughs. You can find apartments to buy in Manhattan for less than $200000. There are also many rentals to be had for under $1000 per month. These prices aren't necessarily in unsafe neighborhoods either. Saying New York is less than 1 mile wide in one area and focusing solely on Manhattan ignores more than 300 square miles of neighborhoods and misleads the reader.

August 23 2011 at 5:40 AM Report abuse rate up rate down Reply
dantdp

The author of this article clearly had not done much research for the comparison rent vs. own.
As vlady1000 had already commented taxes are certainly an important issue when owning.
The cost of rent includes property taxes. Though somewhat variable, heat and hot water is often
included in the rent, as well as cooking gas. There is a whole bunch of room for statistical error
when trying to compare the cost of renting vs. owning and publishing such a national generalization.

August 23 2011 at 12:53 AM Report abuse rate up rate down Reply
vlady1000

Not sure where these people are getting there numbers from. I own many rentals in one of the cities they listed as "cheaper to own" and the taxes ALONE are more than what they said the monthly costs would be of owning. But right now people want to stay flexible, in case they have to move and there is fear of owning, from an investment point of view. That is why I can rent for a higher price than owning.

August 22 2011 at 10:19 PM Report abuse rate up rate down Reply
K White

I sure wish that I had the money to take advantage of the cheap home prices that will likely go up soon. I'm not interested in paying finance charges on a $40,000 house, though. My parents and many of their elderly neighbors spent decades paying mortages for suburban homes in Detroit that were once valued between 150k to 225k. Last month, a decent looking starter home located down the block was sold for $23,000 (a few others have sold for 45k to 89k). What a slap in the face for them. The house needs some updating, but it was a great deal for the new owner. The former owners likely paid several times as much during the sixteen years that they lived there, and were likely pretty close to paying it off before recently losing their jobs. Sad, sad, sad.

August 22 2011 at 8:16 PM Report abuse +1 rate up rate down Reply
burgesswv

It is much less expensive to rent , than buy a home. A renter doesnt have the hgh maintenxance costs, insurance,utilities bills Water rates are double what they use to be.. BUT, if you have a lot of children, pets, buying may be the ideal solution for you.

August 22 2011 at 6:41 PM Report abuse rate up rate down Reply
Ava

I have a house in Las Vegas, I seriously doubt that anyone in their right mind would live in a house for 49,000.00 even in Las Vegas. I do not think you could get a condo in a half way decent neighborhood for less that 80,000. Who researches these things? I guess if you didn't mind living next to a crack addict in a run down shack you could do it. Give me a break, home prices are low but please..

August 22 2011 at 6:11 PM Report abuse +2 rate up rate down Reply
trmnatr2

The only $40k homes you'll find in Philadelphia are in neighborhoods where you need lotsa weapons and a couple pitbulls.In Manhatten ,a closet goes for $500k.

August 22 2011 at 4:37 PM Report abuse +2 rate up rate down Reply
1 reply to trmnatr2's comment
gilruth

yeah and the homes in thesae cities are poor on lot size. if there is 5 feet or less on the property liones you have had it. you caaannot even spread your arms in these places

August 22 2011 at 4:54 PM Report abuse +1 rate up rate down Reply
Robert

I know that the title of this article looks like complete BS - but in the metro Atlanta area you would be astounded at the foreclosure prices available. My son just purchased an 1800 SF 3BR, 2BA home in a suburban area with almost 3 AC of land, garage, and fireplace less than 5 years old for $41K. True, it required $5K to get it back to pristine shape but his 15 year mortgage is just under $300 per month. My car cost more than that!

August 22 2011 at 8:39 AM Report abuse +1 rate up rate down Reply