Buy vs. Rent

Buy vs. Rent


Spanish
 
A house is one of the most expensive purchases most of us will ever make in our lifetime. If you decide to rent or buy, either choice comes with its own rewards and risks. Homeownership offers many advantages over renting:

Advantages of Buying vs. Renting

Buying Renting
Tax write-off No tax write-off
You can upgrade your home as you
see fit
Need permission to make any changes
Build equity in your home as value
appreciates
Your money goes toward the landlords
equity
Control of loan payment options Rent can increase periodically
Pride of homeownership You have no ownership

 
While owning your own home has many benefits, there are still risks to consider:

Disadvantages of Buying versus Renting

Buying Renting
You’re responsible for property
maintenance
Your landlord or manager handles
general repairs
Need to sell, rent or lease property in
order to re-locate. May have to wait
until market conditions are right
Freedom to move once your lease
expires
You pay for all your own utilities,
property taxes and insurance
May include utilities, property taxes,
and property insurance
Home improvement upgrades can run
into thousands of dollars
You’re not financially responsible for
improvements

 
However, all things considered, homeownership is by far one of the best single investments you can make given the potential long-term benefits.

When does it make sense to buy?

People, who have generally rented their whole lives, purchase a home for various reasons. Owning something of value with a chance of watching their investment appreciate is one reason. Purchasing a home to save money over the long-term is another.

Example
Let’s say you’re currently renting a two-bedroom, two-bath apartment. Your monthly rent is $1,000. You find a two-bedroom, two-bath at a market price of $250,000. You have $25,000 saved – enough for a 10 percent down payment. For the purpose of this the National average with, you’re looking to finance $225,000, which includes closing costs.

Using one of several mortgage calculators on the Internet, your monthly payment would be approximately $1,385 for a 30-year fixed loan at an APR of 6.20 percent (the national average). After taxes and appreciation in equity, your monthly payment over five years would average $499 per month.

Costs Savings of Buying versus Renting

Calculations Rent Purchase
Monthly rent/estimated mortgage payment $1,000 $1,385
Purchase price of home $250,000
Percentage of down payment 25,000
Length of loan term (years) 30
Interest rate 6.2%
Years you plan to stay in the home 5
Yearly property tax rate 1%
Yearly home value appreciation rate 4%
Results
Price of home after appreciation $304,163
Remaining balance after 5 years 209,887
Equity in house 94,276
Tax savings (28% bracket) 23,030
Avg. monthly payment over time 1,047 499
Total payments (over 5 years) $62,820 $29,973
Total savings if buying $32,847

Source: Ginniemae.gov. These calculations are estimates only. You should always
seek the guidance of financial or tax experts before making any buying decisions.

The outcome could dramatically change should an unforeseen economic downturn or financial hardship occur (e.g., home improvement costs, catastrophic damage, etc.). While, no one can predict if home appreciation values will spiral downward, or if mortgage interest rates will rise, it’s clear that under the right circumstances home ownership can be financially rewarding.