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.