The Student News Site of University of Arizona

The Daily Wildcat

68° Tucson, AZ

The Daily Wildcat

The Daily Wildcat

 

    Buying is not always better

    Ryan Johnsoncolumnist
    Ryan Johnson
    columnist

    Around the university, signs and bus stops advertising a new condominium conversion project near the UA make a clear statement. At the top they read “”Econ 101″” and then below list “”buying”” and “”renting,”” with a check mark next to buying.

    Another ad frequently seen around campus asks, “”Are you throwing away your parents’ money on rent?”” The ad suggests that an investment in a one-bedroom condo for $150,000 would be a better choice.

    The ads are targeted at UA students and their parents, and the message is clear: Buying real estate is always better than renting.

    Anyone who has actually taken economics 200, the introductory economics course (UA’s equivalent of economics 101), should hesitate to make such a brash generalization.

    In fact, buying when the finances don’t work out, as they frequently don’t on such condo projects, can be a very poor decision for students who are often already struggling to make ends meet.

    Buying when the finances don’t work out … can be a very poor decision for
    students who are often already struggling to make ends meet.

    Owning the residence where you live has always been considered a big achievement, often called “”the American dream.”” And 68 percent of American households do own their residences. But a series of factors means that buying the wrong residence may not be the best option.

    One condo complex touting the benefits of buying over renting is Campus Walk Condominiums, formerly the somewhat seedy Arizona Commons Apartments at University Boulevard and North Euclid Avenue. The apartment complex had been running at an abysmal 60 percent occupancy rate when Sand and Sea Equity Group, a company of former Tucsonans working out of San Diego, bought the 88-unit complex for $11.5 million.

    That equates to $130,000 for each two-bed apartment. Now the company is trying to sell the converted units for $199,000 and up with the hope of making a quick profit.

    Let’s take the example of a two bed, 1 1/2-bath unit at Campus Walk currently on the market for $199,000. Let’s assume a buyer gets an average mortgage at 6.3 percent, pays $500 per year in insurance, $1,500 per year in property tax and pays the $197 per month in homeowners’ association fees that Campus Walk will require.

    That means that the buyer would be paying about $1,400 per month. That equates to $700 per bedroom.

    A quick look at rental home listings suggests it is quite easy to find rentals for far less than $700 per bedroom, with it not uncommon to find rentals at $400 or less per bedroom. In fact, a year ago, some of the same bedrooms at Campus Walk were renting out for about $400. While the complex has been modestly upgraded since, for that price students can rent a very nice house.

    Granted, there are benefits to owning your residence. For one, you are your own landlord, which means more control. But it also means more responsibility. Do you call the landlord when the toilet clogs? As your own landlord, you have to call and pay for a plumber.

    A common argument for why buying is better than renting is that if you rent, you are paying for someone else to build equity. But that only works if property prices are appreciating. A large forecast by Moody’s Economy.com said that Tucson will experience depreciation of 13.4 percent between now and 2008.

    And while campus housing will not experience as big a drop as the general area due to its stable demand, it is unlikely that any appreciation would make up for the very high monthly payments. And unless a family has five students who will keep the place occupied for a decade, the reality is that a buyer would either have to rent the place out or sell it.

    Still, this isn’t to say that buying a property is a completely bad idea. If done properly, it may still work out. For example, a four-bedroom for $199,000 that rents out for $1,300 monthly would look favorable compared to monthly payments of about $1,200 because most houses around the UA don’t have homeowners’ associations.

    Plus, students may be able to find a house that needs weeds removed and a good paint job, allowing them to make some “”sweat equity,”” and they or their parents may be able to get a tax break.

    But don’t let overzealous marketing lead to a bad decision.

    For most students, buying a house or condo isn’t even in the realm of possibility anyway. But they shouldn’t feel inadequate for not owning their residence. Compared to an overpriced property, renting just makes sense.

    Ryan Johnson is a senior majoring in economics and international studies. He can be reached at letters@wildcat.arizona.edu.

    More to Discover
    Activate Search