The Post and Courier, Charleston, S.C., David Slade column

Sept. 14--When the head of a company that builds apartments says tenants are paying "ridiculous" rents, maybe he's on to something.

The Beach Co. President John Darby has taken some heat for his "ridiculous rents" comment regarding The Boulevard apartment complex in Mount Pleasant (I reported his comments in a Sept. 5 news story), but his larger point is worth exploring.

The point is that in some cases, particularly at new apartment complexes in desirable areas, tenants are now paying far more to rent a small unit than it would cost them to pay the mortgage on a nice house. Are these tenants making a bad financial decision?

The answer depends on information including a person's finances, credit-worthiness, risk tolerance and personal preferences. Buying property is, after all, a big decision -- like deciding to marry real estate instead of dating it.

Just looking at the question in dollars-and-cents, there's a good argument to be made in favor of buying, for those who are in a position to buy and have no near-term plans to relocate. The trade-off is, buyers take on financial risk and have less flexibility.

So, how high are the rents that started this discussion?

The Boulevard's website lists one-bedroom apartments starting at around $1,500 monthly, and you would need more than $2,000 for a two-bedroom unit. On the Charleston peninsula, the listed rent for the only one-bedroom apartment still available at the Elan at Midtown on upper Meeting Street is $2,160, and two-bedroom units are more than $3,000.

For context, at today's interest rates, $1,500 a month would cover the monthly mortgage payment on a $250,000 loan, with $3,200 a year left over to pay property taxes and insurance on the house.

Rent that same house, and your rent's going to be paying the owner's mortgage, plus roughly triple the property tax an owner-occupant would pay, plus some profit for the owner, and maybe a management fee.

Most people who rent in the Charleston area aren't paying $1,500 a month for a one-bedroom unit, but rents are high, and rising. Real estate information firm REIS said this summer that the average 5.9 percent rent increase in Charleston since mid-2013 was the fourth highest in the nation, based on what landlords were asking.

A confluence of factors have pushed up demand for rental housing after the last recession and the housing meltdown. Some people lost piles of money when real estate prices dropped, or watched others lose lots of money, and don't want the economic risk of owning.

Others saw their personal finances and credit scores take a beating during the recession, and may be unable to get financing. Young adults are burdened with college loans, but often are underemployed, and many have delayed what economists call "household formation."

For those who do want to own, there's lots of help available. I've written before about South Carolina initiatives that can help buyers with financing, tax credits and even downpayment money -- see schousing.com for details. The city of Charleston also has a limited number of properties for sale at below-market prices for first-time buyers who meet income guidelines.

People who have previously owned a home aren't excluded from these programs. Typically, "first-time buyer" either means you don't currently own a home, or you haven't owned one recently.

Those who truly are first-time buyers do need to do their homework and understand that a monthly mortgage payment is just one of the costs of owning, so you can't just compare a loan payment to a rent payment.

Homeowners insurance can be a huge expense in the Charleston area. Add property taxes, termite protection, utilities and routine maintenance for starters. And remember to keep an emergency fund in the bank in case the air-conditioning system dies, or there's a hurricane and you need to pay a big insurance deductible.

Oh, and don't forget that, like buying a car, a home is essentially worth less the moment you close the sale. With a home, that's because you'll probably have to pay commission of up to 6 percent to sell the home, so it will have to gain value just to break even.

But if all goes well, a home can provide permanence and an opportunity to build wealth. It's a trade-off, of course. Those who aren't ready to make the commitment can keep dating real estate instead of marrying it.

___

(c)2014 The Post and Courier (Charleston, S.C.)

Visit The Post and Courier (Charleston, S.C.) at www.postandcourier.com

Distributed by MCT Information Services