Rent or Buy? Buyer's Choice Realty

Whether to rent or to buy is a decision many struggle with prior to purchasing their first home. There are formulas to help you make the decision from an investment standpoint. We have such a formula on our website that will produce very interesting reports for your consideration. It's very informative and I highly recommend it if you're attempting to decide whether to buy or rent. If you need help in filling it out, one of our brokers will be glad to assist you. Click the following link to access this formula: Rent vs. Buy Calculation

While it is an excellent tool, there are some problems with relying solely on this type of formula to make your decision. First of all, the calculation is based on a series of future cash inflows and outflows and a couple of the necessary inputs are not known, but estimated, such as the expected rate of inflation in the economy and the expected increases in value of your home. We can estimate what we predict will happen based on past perfomance, but as the past couple of years have shown, the unexpected can happen and may have significant consequences. The other shortcoming of the formula is that it doesn't include potential costs associated with repairs and maintenance your home may need. For this reason, I recommend adding extra expenses in the insurance column to account for these expenses in the formula.

As you can see in the formula, the decision is greatly influenced by the amout of time you're planning to be in your home. The longer you're planning to be in your home, the more sense it makes to buy. But there are other things to consider beyond just looking at the formula. Whenever one makes a decision, it is always a good idea to weigh the pros against the cons.

Home Buying Pros

When you buy a home, your mortgage interest and your property taxes are tax deductible. This savings can be fairly significant as illustrated in the formula.
As you pay your mortgage each month, a portion of that payment goes towards principal. Assuming your home increases in value over the period of time you own it, your equity is increasing each month.
When you buy a home with a fixed rate mortgage, your montly mortgage payment and interest is locked in over the term of the loan and will not increase. You will have some increases in costs, such as insurance and taxes, but the majority of your costs are fixed. In contrast, rental rates are not fixed and can rise signicantly over current rates.
There is the pride and satisfaction that comes with owning your own home to consider as well. This may be tough to place an exact dollar amount on, but it is certainly a consideration to most home buyers.

Home Buying Cons

Real estate is not a liquid asset like a stock. This means that when you're ready to sell, you may have to wait for a period of time before you find a buyer willing to pay you what your home is worth. Depending on the market at the time, you could be looking at anywhere from just a couple of months to several months to sell your home. In some extreme cases, it could take a year or more to sell your home at market value. If you need to sell it sooner, you may have to take less than market value for it, which erodes any equity you have built up in your home. You're less flexible to move quickly when you own your home versus renting.
As seen over the past couple of years in the national real estate market, there are no rules in place that home values always rise. Values rose for so many years the sentiment that they did always rise had crept into the minds of many market participants prior to the recent housing problems and this belief by many is one of the many things that led to the housing crisis.
When you own your own home, you are responsible for repairs to the home. When you rent and something needs to be fixed, you call the landlord. When you own and the heating and cooling system needs repair, that cost comes out of your pocket. The same goes for the roof, plumbing, electrical, etc. In some cases, these costs can be significant.

These are just a few examples of things you need to consider when deciding whether to purchase or rent. At Buyer's Choice Realty, we will never pressure you to do something that's not in your best interest. We will be glad to sit down with you and help you review all the pros and cons so that you can make a smart and well informed decision.