Buy versus Rent

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

Advantages of Buying versus 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 Compare mortgage rates.	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 the thousands of dollars.	You're not financially responsible for improvements.
Homes can depreciate in value depending on market conditions	You don't have equity, therefore nothing to depreciate. However, depreciation of home values may cause rent to rise.

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 rented for several years want to purchase a home for various reasons. One reason is that owning something of value with a chance of watching their investment appreciate. Purchasing a home to save money over the long-term is another.

Example

Assume you're currently renting a 2-bedroom, 2-bath apartment with a monthly rent of $1,000. You find a 2-bedroom, 2-bath home at a market price of $250,000 (roughly the national average.) You have $25,000 saved - enough for a 10% down payment. For the purpose of this example, you're looking to finance $225,000 which includes closing costs. Compare mortgage rates.

Assuming a 6.20% APR mortage loan, your monthly payment would be approximately $1,385. If you assume a 1% property tax rate and and a 4% annual appreciation in value your effective monthly payment over five years would average $499 per month.

Costs Savings of Buying versus Renting

Results

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%

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.