Should You Buy or Rent a Home? Buying vs Renting Analysis

October 16, 2012 | By | Reply More

Deciding whether to buy or rent a home may seem like a difficult decision to make.  There are many considerations, especially in the crazy real estate market we’re in now.

It used to be that home ownership was something to aspire to.  One DuPage County homeowner we spoke with, after losing nearly $75k on the sale of the previous home occupied for a little over two years, wasn’t so sure about purchasing his next home. Housing had become more affordable due to the market downturn, but our homeowner was giving strong consideration to renting.

The loss sustained on the purchase of his previous home stung, but it had to do with timing.  Unfortunately, the home was purchased near the peak of the real estate housing boom.  In two years the market had tanked, and faced with no other option, he had to sell the home at a loss.  Due to circumstances, he couldn’t wait for a market improvement.

Our homeowner was left wondering if renting may be a better option than buying.  This home buying versus renting analysis was produced to answer that question.

  • The analysis assumes that the value of the home, property taxes, and monthly rents will increase at the same annual rate as inflation (4%).
  • This is a long-term analysis spanning 30 years.

Home Purchase Assumptions

  • $225,000.00 – Purchase Price
  • 10% – Down Payment (FHA Loan)
  • 5% – Interest Rate
  • 30 Year Mortgage ($202,500 Loan)
  • $4,000.00 – Annual Property Taxes (Year 1)
  • $75.00 – PMI – Private Mortgage Insurance

Renting Assumptions

  • $1850 – Year 1 Monthly Rent

Buying Home vs Renting Home Analysis

Should you rent or buy your next home?

Obviously, personal situations will dictate if buying or renting is best for you.  Renting, especially in the current real estate market, for the short-term, may be the better way to go.  If you only plan to live in a particular area for one to two years, renting will make it easier for you to move.  Also, if you need to have the flexibility to move on relatively short notice (as is the case for military families and many careers), renting may be the better option for you.

Regarding the long-term, buying a home is clearly the most economical choice.  Over a 30-year period, a home-owner can expect to pay nearly 50% less than a renter.

The current real estate market has taught us the hard way, there is risk involved in every investment.  Be sure to consider that risk and your personal circumstances as you evaluate whether to buy or rent your next home.

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Category: Daily Life, Real Estate

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