Is it Better to Buy or to Rent?

Is it Better to Buy or to Rent?

The New York Times Business Day has a great calculator. It shows costs accumulated for six 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’s better to rent if you’re staying less than six years, but better financially to buy if you plan to stay in the home longer than six years.

I do agree with their original premise, that whether renting is better than buying depends upon many factors including:

  • how fast values increase
  • how fast rents rise
  • how long you plan to stay in the home

A word of caution when you check out this calculator is, 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 six years, your monthly payment will increase over time. If you own, however, with a fixed interest rate, 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, the historical norm is for appreciation over a six year time period.

So, when you account for annual home price gains and annual rent increase, it shows that after three years with property appreciation of only three percent and annual rental increase of only five percent, it would be better to buy if you plan to stay in the home for only two years instead of six.

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.

This post has 6 Comments | Would you like to leave a comment?

6 Comments

  1. Josh: In this article, I am talking about a second property strictly as a rental.

    Your suggestion about a duplex is a great one. We have friends who rent out one side of their duplex and live in the other side practically free. Or they live in one side and use the other side as their office, taking all the tax advantages that offers.

    Thanks for leaving a comment!

  2. When you say a second home for rnatel, do you mean a second home that you will sometime reside in or do you mean a second home strictly as a rnatel.I would consider a duplex as most lenders consider a duplex the same as a single family house. As a matter of fact 1-4 units are normally considered as a single family home for mortgage purposes.You should check and see what type of mortgage you would be qualified for, the approximate interest rate, as well as the amount you plan to pay for this rnatel.Now you should figure out the income of the property and if you will have to come out of pocket with any of the monthly mortgage,insurance or taxes.There is also up keep of the property that should be added to the equation.You might also check with the Apartment House Association in your local area for additional information. Since you are now gonna be a land lord you might consider joining this group as they have the necessary rnatel agreements, eviction forms, means to run credit reports and other things necessary for you to be land lords and will supply you with limited legal advise.I hope this has been of some use to you, good luck. FIGHT ON

  3. 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…

  4. 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.

  5. 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!

  6. 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!!

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