Buy or rent that mansion?

414 Round Hill Road

414 Round Hill Road

This is a pretty snazzy 2004 mansion on Round Hill that didn’t sell a few years ago even though it was marked down from $13.9 to $9.999 million. But it’s got everything a young executive eager to impress should have: 6.5 acres of great lawns, huge, sweeping staircase, marble everywhere, pool, pool house, etc. etc. As of today, you can rent it for $30,000 a month. Just for a lark, I ran some numbers through the rent vs. buy calculator to the right of this blog and tossed in some top-of-the-head assumptions: selling price, $10 million, taxes, $45,000, mortgage, $1 million at 6.15%, rent, $30,000 per month. The calculator’s conclusion:

If you assume a 5% appreciation in value, buying is a better deal than renting after 6 years. At 4% appreciation, it will take 14 years for buying to make sense and at any rate below that, buying never makes (economic) sense. Never is a long time.

So depending on how you guess the market will perform and what your feelings are towards owning a nice house versus merely occupying it, you can choose as you wish. What I find interesting is that until 2006, I don’t think anyone would conclude that renting was the better deal. Now it could be.

7 Comments

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7 responses to “Buy or rent that mansion?

  1. anonymous

    Need to risk-adjust buy vs rent for how long most marriages last….lots of first divorces in early 40s, right?

    Divorce and debt (or rather forced deleveraging) are usually bigger risks for most younger homebuyers

    Death/disabilities and the other 2 D’s for elder homebuyers

  2. Anonymous

    Are you factoring in the tax writeoff you get on the mortgage of $1.1M on a purchase? Thats an additional 60K to 70K credit you don’t get from renting.

    • christopherfountain

      I don’t know if the calculator does or not (it doesn’t ask for a tax bracket, so probably not). One good thing about the present administration is, those deductions will be worth more every year.

  3. anonymous

    Would carefully check creditworthiness of landlord

    Likely need to move after 1 year lease expires….reinvestment risk and opportunity costs of annual search for shelter and move-out/move-in process

    Difficult to properly furnish any mega-rental house

    • christopherfountain

      Judging from the empty look of so many of these monsters I see on open house tours, it’s difficult to furnish these things whether you own or rent them. The way I understand it, everything must be custom ordered “super-sized” so as not to appear dwarfed by the room sizes. By the time the stuff arrives, the divorce papers have been filed, Dad’s in the City with girlfriend and Mom’s eyeing smaller places in Old Greenwich.

  4. Old School Grump

    What’s with the pitiful front lawn landscaping? It looks green and well-cared for enough, but completely lacking in a suitable level of ambition for a $10 million property. I realize the house is too new to have “mature” plantings, but these owners ain’t even trying. Those boxwoods, or whatever they are (I can’t enlarge the photo by much) look like military school line-ups of little green meatballs. Yeesh, I miss the days of the inverse relationship: The harder it was to see the mansion from the street, the more desirable you knew it was … even if you’d never actually seen it. And you were right.

    • christopherfountain

      They love those little mushrooms (we professionals refer to them as Brussels Sprouts) because they’re cheap, green and positively scream “New Money”. As, of course, does a house close to the road. If I may be indulged here, I’ll point out that I said exactly this back in 2000 in my opus, The New Millionaire’s Handbook. Nothings changed since, except the houses got even bigger.