Franklin or certain (well lots of areas) of Nashville just don't have many available rentals (worth a damn). I had lots of trouble finding anything around $1/sqft/month to rent but buying is around $.5-.75/sqft/month. There's also several private colleges in Nashville so that may contribute to higher rental demand as well.
Now, I didn't do a full ROI on it since I'm not coming from an investment only perspective and there are certainly other factors but I am including taxes and insurance.
You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way.
Rent's like that don't seem highly unusual either, there's a large swath of people who cannot qualify at the moment but have plenty of monthly cash flow so they are driving rents up. If investors see this and buy in desirable areas, well, that reduces supply as well...
Let's say you can buy a house and pay $1,500/month (all inclusive). As an investor, you've got to factor in maintenance (say $200 a month to account for large ones and if you have the tenants do the lawn care) and, most likely, a 6-8% property management fee (unless you're a big time investor or you treat it like it's your job). So, now you need close to $1,800-850 just to break even, let alone make a profit.
Rent is already 17-20% higher than buying and the investor still needs a profit, depending on the area and demand that can be pretty steep but should be at least 12-15%, so there you go.
EDIT: I should also note that TN is known for it's low COL, I can't imagine this situation gets too much better in more populated areas.
"You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way."
Well, yes, my point is not that you would do it, but someone "must" see it an do it. Its like the old joke about getting an economists attention and pointing to a $20 bill laying on the floor, and the economist refusing to pick up the $20, saying, "thats impossible, by the efficient market hypothesis $20 bills can't be laying on the floor ready to be picked up by anyone."
If my house maint only cost $200/month long term I'd be pretty happy. Or it would have collapsed around me as I live here. The killer isn't so much the multi $1K class expenses like roofs and HVAC, but the $750 appliances, theres so darn many, all value engineered to fail in five years, and the uncountable $100 trips to home depot.
Washer, dryer, dishwasher, stove, oven, water heater. That is six major appliances. Your model suggests that they are worth $750 a piece, which is reasonable. 6 * $750 = $4,500 to replace all of them. $4,500 / (5 * 12) = $75/month to replace every single one of those every 5 years. So, that leaves $125/month for all other maintenance. In the six months since purchasing my house, I have spent a grand total of $325 at Home Depot. Of which, $200 was for luxury nice-to-haves (a fancy towel bar, a fan upgrade, and a TV mount). I do not know what other homeowners spend, but that is my domestic burn rate. Consider that the value of my home has increased about $10,000 in those six months, and renters pay my mortgage, I think I am ahead of the game.
Now, I didn't do a full ROI on it since I'm not coming from an investment only perspective and there are certainly other factors but I am including taxes and insurance.
You are most certainly correct that buying a house for cash would make sense, but if that seems like a truly viable option for a younger family then you have lost touch with reality in a big way.
Rent's like that don't seem highly unusual either, there's a large swath of people who cannot qualify at the moment but have plenty of monthly cash flow so they are driving rents up. If investors see this and buy in desirable areas, well, that reduces supply as well...
Let's say you can buy a house and pay $1,500/month (all inclusive). As an investor, you've got to factor in maintenance (say $200 a month to account for large ones and if you have the tenants do the lawn care) and, most likely, a 6-8% property management fee (unless you're a big time investor or you treat it like it's your job). So, now you need close to $1,800-850 just to break even, let alone make a profit.
Rent is already 17-20% higher than buying and the investor still needs a profit, depending on the area and demand that can be pretty steep but should be at least 12-15%, so there you go.
EDIT: I should also note that TN is known for it's low COL, I can't imagine this situation gets too much better in more populated areas.