I’m often asked if owning is still better than renting given home price increases. In most cases I answer “Yes” but there are many factors one must consider.
Below is a quick comparison between a luxury rental and high-end home purchase. This is a static image and not “live” calculator.
If you are interested in discussing your personal real estate goals, contact me at 305. 329.7770 and I’ll customize a personalized action plan for you.
To further clarify the considerations between renting and buying, I urge to read a recent study by Trulia.com. I think it’s a terrific summary on the subject.
Buying a Home 44% Cheaper than Renting Despite Rising Home Prices
Low mortgage rates have kept homeownership less expensive than renting in all 100 large metros
To determine whether renting or buying a home costs less, we do the following:
- Calculate the average rent and for-sale prices for an identical set of properties. For this report we looked at all the homes listed for sale and for rent on Trulia from December 2012 to February 2013. We estimate prices and rents for the similar homes in similar neighborhoods in order get a direct apples-to-apples comparison. We are NOT just comparing the average rent and average price of homes on the market, which would be misleading because rental and for-sale properties are very different: most importantly, for-sale homes are 47% bigger, on average, than rentals.
- Calculate initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.
- Calculate future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.
- Factor in one-time costs and proceeds, like closing costs, downpayments, sales proceeds, and security deposits.
- Calculate net present value to account for opportunity cost of money.
To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-year fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home. Our interactive map shows how the math changes under alternative assumptions. And if you’re interested, check out our detailed methodology which explains our entire approach, step by step.
For more details and access to interactive map, click here.