Three Questions That Answer Whether it is Better to Rent Or Buy

One of the toughest decisions that many young people ask themselves once they have landed that first salaried or full-time job and are leaving the home or school residence is whether they should rent or buy. While there are certainly benefits to both and certain regional factors might help to persuade people into becoming buyers or renters, when all else is equal, there is an easy way that you can determine which is best for you. It will involve a bit of work (surfing the net for about 5 minutes) and then the rest will boil down to your personal decision. Here are the three steps to finding out what makes the most sense for you.

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1. Find out what rent will cost and compare it to a mortgage payment plus property taxes. For example, suppose your ideal rent situation is a 2-bedroom apartment that will run you $1000 per month. A 2-bedroom townhouse in comparison might cost $230,000 and carry mortgage payments of $1,250 with property taxes of $3,000 per year (or $250 per month). The difference here favors renting to the tune of $500 per month or $6,000 per year. But the decision is not so easily made.

2. Determine what your savings for renting would be over the course of 1 year, 2 years, etc. (or whenever you might be looking to buy) and compare it to the accumulated equity in your home. In the case above, renting would allow annual savings of $6,000. The same mortgage would result in equity build up of roughly $7,800, or $1,800 over the course of the year. In this case, waiting even 1 year to buy your home means you are "behind" by $1,800. And these number do not assume any growth in property values (likewise, it does not assume any deteriorating in property values either).

3. What fits your budget and lifestyle. Owning a home comes with a lot of manual labor, whereas most rentals are "all inclusive." Lifestyle aside, can you afford paying $xxx.xx more every month for a mortgage versus renting? Ultimately, your decision needs to take into account what you can realistically afford without having a negative impact on your lifestyle.

By going through the three exercises above in a situation where all else is equal (what I mean by this is that there is no over-supply of rental units which has made renting more appealing in a high-rate, low home-inventory environment), potential buyers or renters will understand what makes more sense on a month-by-month basis, an equity basis as well as a budgeting basis without getting emotionally involved in the decision itself.

Chris has more than 17 years of financial services experience. He currently manages a website about CDL License requirements at Class-B-CDL-Jobs.com. As well, he manages a website about Novaform Mattress Sale opportunities at NovaformMattressSale.com.

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