Princeton Capital Blog

Is It Still Better to Buy Than Rent?

July 9th, 2014

Business man house in human handIs It Still Better to Buy Than Rent?

Last winter, we looked at whether it made sense to buy or to rent with some of the changes to interest rates. And the conclusion is still the same: it’s better to buy than rent. The idea of a mortgage may seem overwhelming, but in most cases, getting a mortgage can turn out to be a lot cheaper than what you would spend paying rent month after month.

A recent study by real estate site, Trulia, shows that “homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas.” In fact, buying a home is about 38 percent cheaper than renting, according to the study. They also offer these five steps to calculate if it’s a good idea for you:

  1. Calculate the average rent and for-sale price for an identical set of properties. For this report we looked at all the homes listed on Trulia for sale and for rent from December 2013 through January 2014. We estimate prices and rents for similar homes in similar neighborhoods in order to get a direct apples-to-apples comparison. We are NOT just comparing the average rent and  price of homes on the market, which would be misleading since rental and for-sale properties are very different: most importantly, for-sale homes are roughly 50% bigger, on average, than rentals.
  2. Calculate the initial total monthly costs of owning and renting, including the mortgage payment and rent, as well as maintenance, insurance, and taxes.
  3. Calculate the future total monthly costs of owning and renting, taking into account price and rent appreciation, as well as inflation.
  4. Factor in one-time costs and proceeds, like closing costs, down payment, sales proceeds, and security deposits.
  5. Calculate the net present value to account for opportunity cost of money.

It may take you awhile to save up the closing costs and down payment. However, talking with a mortgage professional will help you better understand how much you would really need to save rather than using an online calculator which tend to give broad estimates.

Some people need to purchase starter homes before they can get their dream home. Don’t let that stop you. Buying a smaller place will allow you to build up equity that you can leverage to buy a larger home when the time is right.

If you’re thinking about buying, it also helps to know what you want and what you need out of a home. Zillow provides a nice checklist that helps you think through what you want (and don’t want) from a home. Print it out and start dreaming. Then contact a professional loan officer to find out where you are and where you need to get to in order to buy that home.

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