Rent or Buy
Which is best?
Owning your own home means paying no rent!
But there are still running costs, such as repairs, insurance and taxes.
And then there's interest on any money borrowed (the mortgage).
There are also extra fees and taxes when you buy and sell property, so you need to stay there long enough for it to be worthwhile.
A good rule of thumb is:
- Less than 3 years: Rent
- More than 5 years: Buy
An example graph,
lower is better!
Example: The 3-Year Mark
Imagine you find a place to rent for $1,500 a month. Over 3 years (36 months) that's:
36 × $1,500 = $54,000
You also find a place to buy, but there are $15,000 in "entry fees" (taxes and so on) and another $15,000 in "exit fees" when you sell: that's $30,000 just on fees!
The property value might rise during that time, which would be really nice! But it might also go down, no guarantees.
Add in ongoing costs and interest, and renting might actually be the cheaper choice for that short time.
Between 3 and 5 years needs a lot of calculations to make a decision.
You can calculate the Net Present Value of both choices.
For buying include purchase and sale costs (fees and taxes), ongoing costs (repairs, insurance, taxes) and also possible profit or loss on sale.
For renting include rent rises.
Pick the best choice, but bias a little toward buying as it is really nice to have your own place.
Good luck with your calculations!