Sending in that rent check every month can feel like you’re flushing money down the drain. You’re paying for a roof over your head, but it’s hard to compete with buying a home and building equity.
As it turns out, though, renting for a few years may make perfect financial sense.
Zillow’s breakeven horizon metric measures the number of years after which buying a home is more financially advantageous than renting. This period of time is calculated by comparing the net costs of buying a house with the costs of renting the same home. From here, average and median breakeven horizons are computed at the city and metro levels.
Based on Zillow’s breakeven horizon data and average home values across the U.S., here’s a look at the top 10 big cities where renters have the edge:
No. 10: Nashville, TN
Breakeven horizon: 2.6 years*
Zillow Rent Index: 3.8 percent*
Homes sold at a loss: 24.56 percent*
The Nashville housing market has held up fairly well, but it still takes 2.6 years before buying pays off more than renting. The Zillow Home Value Index (ZHVI) increased 6 percent year-over-year to $140,000 in December 2012. Meanwhile, the Zillow Rent Index (ZRI) was up 3.8 percent. By comparison, Memphis home values were down 3.5 percent, and rental rates were flat, according to Zillow Chief Economist Stan Humphries.
Nashville offers a variety of options for renters — from high-rises in the heart of the city to country estates and loft apartments such as the one pictured above. Brentwood Downs offers 1-bedroom units featuring newly designed interiors, several outdoor amenities and proximity to the country music capital for only $720 a month. This is a smart choice for someone who wants to experience the Nashville scene for a couple of years before settling down. It’s also well below the Nashville ZRI of $1,190*.
No. 9: Austin, TX
Breakeven horizon: 2.7 years*
Zillow Rent Index: 6.2 percent
Homes sold at a loss: N/A**
As 2012 came to a close, the Austin real estate market continued to improve with a median home value of $209,900, a 4.7 percent increase. The rental market also looked favorable with the ZRI reporting a 6.2 percent rise.
With a median monthly rent of $1,516*, a 1-bedroom apartment for $1,214 (such as the one pictured above) is a classy yet budget-friendly option. Perfect for innovators flocking to trendsetting Austin for less than 2.7 years, the building is located in close proximity to Dell and IBM. After working out in the gym or relaxing at the pool, residents can cook in their own gourmet kitchen or try out a new restaurant within walking distance of their front door.
No. 8: Denver, CO
Breakeven horizon: 2.8 years*
Zillow Rent Index: 9.3 percent
Homes sold at a loss: 21.13 percent
Denver is seeing double-digit growth in its median home value, up 14.1 percent to $233,700 as of December 2012. While the Denver housing market is doing well, it takes 2.8 years for owning a home to make the most financial sense. In the meantime, the skiing and dining mecca is a renters’ paradise.
Nestled in the heart of downtown Denver, Skye 2905 offers the best of urban living. One-bedroom flats are currently renting for $1,448 a month, below the Denver median rental price of $1,468*. The building has several shared amenities, including a poker room, computer stations and barbecue area. It’s also a close walk to LoDo, Larimer Square, Coors Field and other city attractions.
No. 7 (tie): San Jose, CA
Breakeven horizon: 3.3 years*
Zillow Rent Index: 4.5 percent
Homes sold at a loss: 33.5 percent
Humphries says that with more than 6,600 technology companies in San Jose, people prefer to buy. With a median annual income topping $92,500 and a median home value of $544,600, buying a home in San Jose is definitely in the cards. But with the housing market doing well, the breakeven horizon in San Jose is unsurprisingly more than three years. For technologists moving to Silicon Valley for the first time, it makes financial sense to rent until you know you’ll be in tech central for longer than 3.3 years.
Archstone Willow Glen, pictured above, is renting spacious 2-bedroom, 2-bath apartments for $2,435 and up. This is a financially advantageous choice for someone looking to live in San Jose for only a couple of years. It’s also below the ZRI of $2,513*.
No. 7 (tie): Los Angeles, CA
Breakeven horizon: 3.3 years*
Zillow Rent Index: 2.3 percent
Homes sold at a loss: 24.86 percent
Tied with San Jose, the Los Angeles market has the same breakeven horizon of 3.3 years. However, the two California markets are quite different. While San Jose is benefiting from a high employment rate, unemployment dominates in L.A. Home prices also fell about 35 percent from peak to trough, making L.A. overall more affordable for home buyers, Humphries says. This doesn’t mean it’s cheap, though. The median home value was still up 9.7 percent at $399,800 as of December 2012.
Actors and dancers trying to make it in Hollywood aren’t the only ones seeking apartments. Unless you’re ready to live in a home for more than three years, it is actually smarter to rent in Los Angeles. Starting at $2,250 a month, the classy Milano Lofts offer 1,000-square-foot units. The building has a newly constructed interior — not to mention a rooftop deck perfect for soaking in the California sun. Residents can also trust they are getting a good deal when the median rental price is $2,311*.
No. 6: San Diego, CA
Breakeven horizon: 3.4 years*
Zillow Rent Index: 2.9 percent
Homes sold at a loss: 34.86 percent
Beach living just got brighter with the median San Diego home value up 11 percent from a year ago at $404,100. “If you want to move into housing, it looks more affordable now than it has in the past,” Humphries said.
The ZRI also rose 2.9 percent in San Diego to $2,116 in December 2012. Renting pays off if you plan to soak up the sun for less than 3.4 years. The apartment complex above is renting 2-bedroom, 1-bath units starting at $2,122 a month. This is a budget-friendly option, while also providing proximity to the beach, ocean views, a large swimming pool and gym.
No. 5: Portland, OR
Breakeven horizon: 3.6 years*
Zillow Rent Index: 8.6 percent
Homes sold at a loss: 21.49 percent
The No. 1 city for bike commuters in the U.S., Portland is home to a new wave of urban dwellers. This is fitting considering Portland is a city where it is in your favor to rent with a breakeven horizon of 3.6 years. The ZRI was $1,423 as of December 2012, a 8.6 percent year-over-year gain. Meanwhile, the median home value in the city rose 8.8 percent to $257,400.
Constructed in August 2010, the 13-unit apartment building above is offering a 1-bedroom for $1,410 a month. This is below the median rental price in Portland, yet comes with all the conveniences of modern living. From a completely green, LEED-Gold certified building to a nearby dog park and Clinton Bike Corridor, this building is a breath of fresh air for the environmentally conscious.
No. 4 (tie): Washington, DC
Breakeven horizon: 3.7 years*
Zillow Rent Index: 7 percent
Homes sold at a loss: 16.07 percent
According to Humphries, the Washington, DC housing market is seeing a lot of new construction interest, both in single-family and multifamily homes. This is not surprising considering the area’s government jobs, as well as thriving health care, education and military institutions. The median home value was $402,400 as of December 2012, a 10 percent increase from the previous year.
However, a stable real estate market means it takes longer for a home purchase to start paying off. Unless you’re working at the White House for a full presidential term, it’s in your favor to rent. Avalon at Gallery Place, an apartment building pictured above, is located in the heart of Gallery Place, steps from the Metro. For $2,425 a month, a 1-bedroom unit here is a great value when the median monthly rent is $2,439*. The building is dressed in sophisticated, contemporary style — you may not want to leave the lobby.
No. 4 (tie): San Francisco, CA
Breakeven horizon: 3.7 years*
Zillow Rent Index: 12 percent
Homes sold at a loss: 16.70 percent
On par with Washington, DC, San Francisco is also a thriving market. Perhaps unsurprisingly, the median home value tops all cities on this list at $770,600. That’s up nearly 18 percent year-over-year.
Because it takes 3.7 years to make money on your home, renting is a smart choice in San Fran. And a renter’s life isn’t too shabby. For less than the ZRI of $3,281*, the 1-bedroom apartment above can be yours starting at $3,238 a month. The listing says this is the place to be “to experience a city in its fullest and most vibrant … where the big decisions are made … and where the arts are taken to new heights.” If nothing else, a view of downtown is an enjoyable perk.
No. 3: Boston, MA
Breakeven horizon: 3.9 years*
Zillow Rent Index: 11.3 percent
Homes sold at a loss: 26.73 percent
With universities and colleges galore, Boston is home to a number of renters. And with a breakeven horizon of 3.9 years, it’s rightly so. Last December, the Zillow Rental Index and Home Value Index soared more than 11 percent year-over-year in the Boston real estate market. The median home price was $370,800, while the median rent was $2,299*.
Amenities not visible from the curb are a hidden benefit of urban living.. This Boston brick classic is renting studio apartments for $2,295 a month with great shared spaces such as this landscaped patio filled with cherry blossoms. Not only is the rent below the ZRI; all utilities are included. The building also has an updated interior with modern finishes.
No. 2: Seattle, WA
Breakeven horizon: 4.3 years*
Zillow Rent Index: 4.7 percent
Homes sold at a loss: 26.87 percent
Surrounded by water, Seattle offers extraordinary views for renters and homeowners alike. But prime Seattle waterfront property comes with a hefty price tag, considering the median home value was $392,200 as of December, a 12.6 annual increase. With a breakeven horizon of 4.3 years, though, renting may be a better choice for the short run.
Well below the ZRI of $1,850, the Prescott is renting 1-bedroom, 1-bath apartments starting at $1,645 a month. In addition to being in the coveted neighborhood of Wallingford, the building features a rooftop garden with pristine views, a barbecue area and shared pea patch. Inside, a caterer’s kitchen, entertainment room and fitness center also provide plenty of activity on a cloudy Seattle day.
No. 1: New York, NY
Breakeven horizon: 5 years*
Zillow Rent Index: 19.4 percent
Homes sold at a loss: 13.83 percent
Renters in the Big Apple shouldn’t feel rushed into buying. Unless you plan on staying put for at least five years, it actually makes more financial sense to rent an apartment in the heart of the city. The median home price for New York stayed at $462,500, and the rent index rose to $2,016 as of December 2012. Although nearby Manhattan is a different story, New York proper is a renters’ market.
For $2,000 a month, residents can enjoy 1 bedroom, 1.5 baths and an updated kitchen in one of the newest luxury buildings downtown. While it may cost quite a bit more to rent in Manhattan, the building offers unobstructed views of the borough and is steps from Tribeca and SoHo. There are also 22,000 square feet of indoor and outdoor common spaces including a pool, game room and gym.
*ZRI and ZHVI median figures show year-over-year percentage change for December 2012. The breakeven analysis was done using data through September 2012. Home loss figures are for December 2012.
**It’s not possible to accurately calculate the home-loss figure for Austin due to public-records laws in Texas.