Why You Should Buy—and Not Rent—a Home in South Boston

South Boston is a great place to call home. Week by week, the neighborhood continues to grow more popular.

Southie is a thriving development scene, and that doesn’t seem to be changing any time soon. Boasting beautiful beaches and a seaport, the area has become a desirable location for young professionals and families in recent years. Some families have even been delaying the suburbia trek and staying longer to reap the benefits of this desirable neighborhood.

It’s no surprise, then, that the costs of real estate have skyrocketed over the last five years. 

With average homes in Southie being listed at over $800K in many instances, residents and people planning to move to the area are likely thinking that buying a home is out of the question, and that renting is the better option. 

The truth is, however, that investing in South Boston real estate still makes sense.

Boston is one of the top five most expensive rental markets in the nation. Despite the high cost of homes in the area, South Boston doesn’t even make the list of the 25 most expensive housing markets in the U.S. 

That means the value you're getting from buying a home still makes sense. 

Especially if you plan to live there for more than 6 years, the math works out in favor of buying.

It’s a Numbers Game

There are cities where it makes sense to rent a home, (looking at you, Manhattan), but those tend to be places where you’d have to live more than 10 years in order to recuperate from the costs of buying. 

That isn’t the case in Southie.

Cost of Renting vs. Buying

In South Boston, the rule of thumb is that you should only purchase a property that, if rented out, could roughly cover your monthly mortgage costs from purchasing.

There’s actually an equation you can use to determine whether you’re better off buying or renting, called the price-to-rent ratio. While the price-to-rent ratio doesn’t offer any insight into the cost of living in a market, it can give you a comparison of the economics of buying verses renting.

The formula (average list price / (average rent x 12), when applied to the average real estate value and the average monthly rent in South Boston comes out to about 19.8. The lower the number, the better off you are buying over renting. 

Especially when compared to cities like San Francisco, New York, Seattle and Los Angeles, whose price-to-rent ratios range from ~35-50, South Boston’s ratio is low, and compares to cities like Kansas City, Missouri. 

That means, despite the fact that Boston’s a world-class city, purchasing real estate is still a better value than renting when compared to other world class cities. 

Price Per Room

If you’re thinking renting will still be the better option because you really only need one bedroom, think again. 

The average cost of a one-bedroom condo in Southie is about $540,000, and the average rent for a similar home is $2500 per month. The price-to-rent ratio works out to be ~18, which isn’t much lower than the overall ratio for the neighborhood. 

Two-bedroom condos average about $700,000, with apartments averaging $3,300 a month, making their ratio 17.6. Three bedrooms homes average $940,000, with rent at $3,850 per month, coming to a 20.3 ratio.

Here’s the takeaway:

If we look at other top markets, such as NYC, Southie’s still got some ways to go before renting is the better option. As Boston renters continue to get the shaft, it’s better to go for the investment that will potentially increase in value over time.

Tax Deductions

Living in any major metropolitan area is going to be more expensive than living in a suburb or rural area. In a way, the cost of living is the price you pay for the amenities: the entertainment options, restaurants, shops, and close proximity to commercial and social venues.

The federal government offers great benefits as an incentive to encourage home purchases. 

Homeowners are able to deduct not just the interest they pay on their mortgage from their federal taxable incomes, but also their property taxes and other itemized deductions. You can deduct up to $100,000 of interest on home equity debt, which gives you an incentive for home improvements. 

When it comes time to sell your home, you can even exclude up to $250,000 ($500K for married couples) of capital gains on the sale from your taxable income. 

There are no comparable benefits available to renters, as far as taxes go, other than a small rental deduction on your state tax return.

Homes in Southie Are Increasing in Value

One of the benefits of buying a home that can’t be ignored is the potential for appreciation. In Boston, and Southie in particular, the value of property has steadily been increasing. Though real estate is cyclical in nature, long-term estimations indicate a bright future for the neighborhood.

Buying Has a Better ROI Overall in Certain Desirable Markets

No one likes to throw away money, and for certain individuals, that’s what renting amounts to, or at the very least it's like you're on a treadmill at a constant speed, not gaining ground, but not losing ground at the same time.

Many people love the flexibility of not owning, and for them, renting is certainly the better choice. However, when purchasing a home correlates with your desired lifestyle, the value a home brings is well worth the cost. 

At the end of the day, if you’re planning to move to South Boston, buying is the better option in many cases. 

Even if you don’t think you have the funds, there are certainly ways to make it more accessible. 

My advice is: If buying does work for you, look for a place that stands out from the rest. In a neighborhood this desirable, it’s an investment you can feel good about. 

Read about what it takes to win an offer in South Boston. Looking for more info about all the new development in South Boston? Or simply need real estate advice? Click here

Have any questions? If you have further questions, please post them in the comments below, or message me directly.

Chris Fitzpatrick is a real estate broker in South Boston with a CPA background. He focuses on adding value in the form of creating proprietary real estate market data and technology helping sellers, buyers, and developers. Chris can talk your ear off about the benefits of yoga and group exercise training, loves to travel, is passionate about entrepreneurship, and loves rooting for the underdog.