Rent vs Buy: What's Right for Me?

Renting vs. Buying: What is right for Me?

When people are looking into housing options, one of the first questions they will ask themselves is, should I rent or buy?

Home ownership comes with many benefits. Home values increase over time making them good investments. Your monthly payments are paying off your principal (as well as interest) increasing your equity over time. It also gives piece of mind having a place you can truly call your own.

Renting, on the other hand, minimizes the need to pay for costly repairs, has a much shorter commitment level, and in some markets allows you to live in areas of a city you may not be able to buy in.

So which option is best? Well, the answer to that question may vary from person to person, but here are some things to consider when making a decision that works for you.

How Long Will You Be Staying in Your Home?

When you buy a home, there are many costs involved including appraisal fees, title insurance, brokers’ fees and a mortgage origination fee. If you plan to live in your home for a while, you will be able to pay these fees off over time. However, if you sell within a few years, your home may not have appreciated enough to offset these costs (including selling costs, approx. 8%-10% of sale price).  

If you are planning to stay in your home 2 years or less, you are probably better off renting.

Will Home Prices Increase?

Most people buy a home because they think it will be a good investment that will increase in value over time. This is a called appreciation. Historically this is true, especially when looking at the Seattle area. However, there are often housing market dips or crashes where the value of houses goes down temporarily.

Is Renting a Waste of Money?

Many people would say that those who rent are just “throwing away your money”, since your monthly payments don’t go towards equity. However, homeownership can be expensive with unexpected maintenance. The expected expenses include property tax, insurance regular maintenance and interest.

How About Tax Deductions?

There are certain tax deductions homeowners are eligible for that will somewhat counter their expenses. Recent laws have lowered the cap on mortgage interest that can be deducted. Other requirements are that affect the deductions homeowners are able to claim.

The Rent vs. Buy Calculator

To truly determine whether renting or buying is right for you, it’s a good idea to use a rent vs. buy calculator.  

Input the following information:

·        Where you want to live.

·        The home’s purchase price.

·        Your down payment.

·        The terms of your mortgage.

·        How long you plan to live there.

·        The cost of renting a comparable home.

The calculator will go from there to measure all expenses including rent, renter’s insurance and security deposits for renters as well as closing costs, down payments, ongoing expenses, home renovations, taxes and tax deductions for homeowners. It will also account for equity, the growth and decline of home prices and long-term capital gains.

After taking all this information in, the calculator will give you a good idea of what you can expect to spend on each and where the breakeven (and profitability starts) when buying.

Renting vs. buying is a difficult decision to make. It can be daunting transitioning from being a renter to a homeowner. Knowing when the right time is right will make your transition smooth and successful.