Tuesday, June 15, 2010

Rent or Buy?

The life-long question of real-estate is: Should you buy or rent? While the question has been around for as long as real estate has, answers have not. Lifelong renters move to a new town and become buyers. Lifelong buyers realize the error of their ways or have life changes and become renters. The truth is the subject is very subjective. What may appeal to one person, will not necessarily appeal to another? However, this is not to say that there aren’t hard facts behind the choice.

In order to determine whether renting or buying is better we must consider a few crucial factors:

  1. The rate at which price and rent grows or declines

  2. The duration of your stay

  3. How the real estate market in your city works.

For example; while it might be financially beneficial to rent in Manhattan due to the extremely high home prices, one is faced with a completely different set of circumstances in Phoenix where it makes more sense to purchase than rent.

For some quick number crunching, here is a helpful rent vs. buy calculator offered by the New York Times.


Before making a final decision, the buyer or renter needs to consider a few other key points.

  • What is the shape of their current income? Owning a home may sound nice, but if the buyer is planning on moving out soon it makes little sense to buy. It should be noted, the average homeowner stays in the same place for roughly 5-7 years, depending on the source. Although down payments are getting as small as 1% and the costs to purchase a home have declined historically, often it makes more financial sense to rent if the planned duration of your stay is relatively short.

  • Do your research before buying or renting. If you are taking out a mortgage to make a purchase, make sure you are getting the lowest interest rate possible. Once again, consider all possible risks of the investment you are about to make. Make sure that after the purchase you will still have some equity; i.e. that the price of the home if you decide to sell is greater than the unpaid mortgage and your financial situation is suitable for such a purchase.

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