Is It Really Cheaper To Rent Than Buy A Duplex In Minneapolis Or St Paul?
You may have seen a headline touting that nationwide, it’s less expensive for someone to rent a two-bedroom starter home than to buy one.
According to the Realtor.com report that conclusion was drawn from, this is because nationwide, rents are 2.8% lower than their peak in 2022.
Buried in the data, however, was the news there are several markets where the advantages of renting rather than buying were diminishing. Minneapolis was among these. According to the study, the median rent for a 2BR starter home or condominium in the Twin Cities metro is $1481. The monthly cost to buy a 2 bedroom starter home, however, is $2429. Therefore, it costs $948 more per month, or 64% more to buy than own. This gap is smaller than one year ago – by a whopping $1.
The Twin Cities fared far better than tech centers like Austin, Tx, where the gap was 141.5% and Seattle, where it was $121.1%.
The good news for both duplex buyers and sellers is the median home price for a duplex in the seven-county metro area in 2023 was $380,000. The median home price for a 2 bedroom starter in the Twin Cities last year was $265,000. Let’s compare the cost of someone buying and occupying each.
The Realtor.com study assumed an 8% down payment. For our purposes, let’s say it’s 7% interest on the mortgage, amortized over 30 years.
That makes the house payments in my analysis $1622.01 per month, not counting taxes, insurance or closing costs. For the duplex it would be $2325.90.
If an owner occupant purchases a duplex, and subtracts the average rent of $1481 from the mortgage payment of $2325.90, that means the owner’s portion of the payment would be just $703.89 plus taxes, insurance and utilities. Of course, those were not factored into the single family mortgage payment in this scenario either.
In other words, buyers who’ve been priced out of the home market have two choices; rent from a Twin Cities duplex owner, or buy one to live in themselves.
Either way is a win!