Rent vs. Buy
The comprehensive and non-partisan real estate website Trulia published a feature article in March that brashly trumpeted, “Ain’t No Lie, It’s Cheaper to Buy, Buy, Buy.” It’s safe to assume that if the headline were a bit longer, it would end with the words “a home.” That would have thrown off the whole catchy rhyming scheme, but the point is clear: it makes better financial sense, almost everywhere in America, for people to buy a home than to rent one.
The article goes on to report that, according to Trulia’s own Rent vs Buy Index for the winter of 2012, it was less expensive to buy than to rent in 98 of the nation’s 100 major metropolitan areas, including traditionally high-priced cities, such as Los Angeles, New York and Boston. The two exceptions are Honolulu and San Francisco, each of which landed in the next category, “renting and buying offer a similar value.”
After a little bit of research on the Internet, you should have no trouble figuring out if renting or buying is right for you in your individual situation. One simple formula to try is to research the asking price for a variety of rentals in the area in which you want to live and calculate the average. Repeat this process by researching the prices for homes that have sold recently in the same area (do not use listing prices as these are generally higher than the selling price), and then factor in some of the other costs usually incurred by both renters and buyers, such as deposits, insurance, maintenance, and taxes.
For a more immediate comparison, albeit potentially less applicable to your personal situation, there are numerous free rent-vs-buy calculators at your disposal online. Some of the comparatively more trustworthy sites to try include Ginnie Mae, MSN Money and the New York Times.
Of course, in the long run there is another factor to consider which goes beyond simple month-to-month expenses, namely the opportunity to build up equity as a homeowner. Over time, this has traditionally been a key source of wealth accumulation for Americans. Even though the current real estate market nationally continues to face challenges, this is still true today.
