The New York Times Business Day put out a great calculator that I hope they never take down!
It shows costs accumulated for 6 years for both buying a home and renting a property.
What they determined (and I will argue with some of their conclusions in a minute) is that it is better to rent if you’re staying less than 6 years but better financially to buy if you plan to stay in the home longer than 6 years.
I do agree with their original premise that whether renting is better than buying depends upon many factors including how fast prices and rents rise and how long you stay in your home.
This is a very detailed calculator and I love it. A word of caution when you check it out because, as it’s set up, the default that you first see leaves out a few points I consider very important:
(1) it doesn’t take into consideration that, if you rent for 6 years, your monthly payment will increase over time. If you own, however, with a fixed rate (which everyone should have), your payments will not increase.
(2) There is no taking into account appreciation on the value of the home you will own. There has been little if any appreciation in the last few years and even great depreciation in some areas, however, historical norm is for appreciation over a 6 year time period.
So, when you account for annual home price gains and annual rent increase what it shows is that, after 3 years with property appreciation of only 3 percent and rental increase of only 5 percent, it would be better to buy if you plan to stay in the home for only 2 years instead of 6.
At any rate, I love this calculator and hope you will, too! If you have more questions or comments about it, please let me know.
Did it change any of your thoughts about buying versus renting?
View the calculator at the New York Times, Business Day.
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This is a great article. After renting for 15yrs I never thought I would be a homeowner..but I found a great small house within my budget & checked into it & was pleasantly surprised to find out my payments would be less than what I was paying in rent..so that was 6yrs. ago & it’s been wonderful. I realize some folks don’t want the responsibility of maintaining a home as it can be time consuming but they could easily buy a townhome or condo & build equity. Deducting my mortgage interest off my taxes is exciting too..it made a huge difference in my tax liability. I would encourage anyone thinking of buying to check into it further & stop paying rent..you can own a home!!
Jul 27th, 2010 / 9:42 am
Jay:
You’re so right! It’s easier than most people think and can save money as well as being a great investment in your future. I was amazed when I owned my first home to find out how much equity I had after only 6 years. WAY more than I could ever save from my W-2 job!
Congratulations to you on doing it right!
Jul 27th, 2010 / 10:09 am
Fascinating stuff. I ran the numbers for my home in Australia to see if it proved the same for the Down Under market and it did – until I found the bit where it does tax deductions. These don’t work in Aus. We can’t write off interest and other expenses on our own home.
When I moved my tax bracket from 20% (default) to 0% (from a property point of view that’s what it is in Australia) it is never more profitable to buy! I’ve heard that mentioned by financial experts in Aus, but seeing in in b/w it hits home.
But…. there is the intangible of owning your own home. I love nesting which is hard in someone else’s house.
Jul 28th, 2010 / 12:34 pm
Laura:
Not only that, but you’ve done it right. 3 houses that are paid for, free-and-clear, that allow you fabulous monthly income.
That’s something you NEVER get if you’re renting…
Jul 28th, 2010 / 1:49 pm