Is Now The Time To Buy Or Rent?
Should you buy or rent? It depends on your circumstances and the real estate market where you are going to live. Years ago I sold a home for a young couple who owed almost as much as the sales price on their house. They needed to take money from savings to pay the closing costs and sales commission. You can bet that they wished they had rented for the couple years they lived there.
This brings up the first thing to consider when comparing buying versus renting: the amount of time you’ll be there. Buying and later selling a home will usually cost about 10 or more of the value of the home. These costs mean that if the home only went up in value 10 or so in the year or two you lived there you won’t be gaining anything equity gain from principal paydown is very little in the first years. You’ll often be better off renting if you’ll be in a town for less than a few years.
What about towns with faster rates of appreciation? Have you done some serious homework? If not to assume appreciation will be more than the rate of inflation is just gambling. The sellers in the example above sold for the same price they bought the house for two years earlier and this was in a decent and growing area. You can’t count on fast appreciation just because it has been that way recently.
To Buy Or Rent Cost Comparison
Looking at buying versus renting you have to take into account that in many places it cost much more to buy. In Tucson Arizona for example a small home can cost 200000. The mortgage payment taxes insurance and maintenance will add up to about 1600 per month but you can rent the same size home for about 800.
What does that mean? Many real estate fanatics will say you’re at least buying something for your money and renting is throwing your money away. Of course in this example more than 1000 of your payment will be going towards interest alone and that’s not buying you anything.
Suppose you can afford the 1600 per month but instead you rent for 800 and put the other 800 into a decent safe investment that makes you 5? In three years you’ll have over 30000 in this account. If the home appreciated at 6 per year it has been more like 25 per year recently but that can’t continue and assuming so is not planning but gambling it would be worth 231000. The costs of initially buying it and then selling it would be around 13800 2 buying and 6 selling leaving you with a gain of about 19000 once we include your principal paydown.
In other words you would be at least 11000 better off if you rented and banked the difference. Every market is different of course so you have to do the math. Compare the total costs of owning versus renting and then make safe assumptions about the rate of appreciation for homes.
If you’ll definitely be in one place for a long time to come it will almost always be better to buy than to rent. In the last example buying becomes a better bet after about four or five years. Also consider that if you get a fixed rate mortgage your payment will never change a benefit landlords won’t offer you that on your rent payment.
To sum up look at the time you’ll be there the comparison of total monthly costs whether rents are going up fast and whether you have good reason to believe home prices will be going up fast. Then look also at all the personal factors. Do you want to be responsible for the maintenance yard work and unpredictability of ownership problems?
To buy or to rent? In the end you have to work this one out by yourself.
About the writer: SellSarasota.com is a Sarasota Property company with professional effective services to help you succeed in the Sarasota Florida real estate market. Visit SellSarasota.com for information on neighborhoods and home listings and Longboat Key Condos.
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