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Rent vs. Buy

Rent vs BuyThere has been much debate lately over the benefits of renting vs buying and which is the better choice in this ever changing society and market. The answer simply is, it depends.

There are so many factors you have to consider on a case by case basis, that there is no “one size fits all” answer to such a complex question. There are many benefits to both home ownership and renting depending on your personal situation. You need to take the time to figure out based on your needs which makes the most sense for you.

The most important factor in my opinion, is how long do you plan on being in the home/city you are moving to. There is no way to predict the future, but you can make a sound decision based on what will be your most probable situation. Based on your family situation, what type of career you have, what your desires are, and what your future expectations entail, you should be able to make an educated guess on how long you can expect to be living in any particular home/city. The time frame continuously changes in different markets, but in general if you plan on staying in a home/city for more than 5yrs, it will be more cost effective to purchase vs renting if purchasing is a financial option for you. Again this is also very generic and needs to be broken down further for a more accurate comparison. Any agent can do a Rent vs Buy comparison for any property you are considering. It will show you the comparison of rent rate, and rental insurance vs purchase cost, closing costs, property taxes, maintenance costs, home owners ins, HOA dues, PMI costs, home appreciation, tax savings, and then costs of selling the home.

Last year the average 3bdr 2bth 2000sq ft single family home in Del Mar west of the I-5 rented for $4000/month. The same home sold for $990,000.00 last year. That means if you were to rent longer than 5 years it would be more cost effective for you in general to purchase vs renting. You really need to ask yourself what are your realistic long term expectations based on your particular lifestyle and needs to find out if renting or buying is the best fit for you at any particular moment.
Ex. $990,000.00 purchase vs $4000 rent. 1 year rental cost would average $38,000. (Rent plus, rental insurance, minus income would get off down payment if invested it vs using as down payment) To buy the home, live in it a year and then sell the home it would cost you an average of $89,000.00 (Down payment, mortgage, Home Ins, maintenance, selling costs, other misc costs) So you can see it would clearly be beneficial to rent vs buy if only living in the home for one year. However, if you were to rent for 5 years then your rent costs would be around $200,000.00 vs costs of buying and reselling of only $160,000.00. (See details of Buy vs Rent at end of blog.)

There are many factors to consider when deciding whether to buy or rent, but the most important to consider is how long you plan on living in the home/city you are moving to. Helping you look at what choice is best for you, is where a talented agent is priceless. A good agent will help you go over your needs and help you look logically at your situation to find the best fit based on the market. There are always large swings in both the rentals and sales markets that could largely effect your immediate decision and this is where your agent’s knowledge will pay off. It is not about commission amounts, or promoting the American Dream of home ownership vs landlords and investors, it is a question of what is best for you depending on what your current needs are. Your real estate needs will most likely change multiple times over your life time, and so you never know whether renting or buying is in your future, but a good agent will help you make the most sound decision and then be there as your needs change. I recommend all clients ask their agents to show them a buy vs rent comparison to make sure they are making the best decision for their particular situation.

Tim Anspach REALTOR #01884054

Report on Rent comparing to Buy

Rent vs. Buy
Monthly Rent Payment: $4,000.00
Annual Return on Investment: 5% Purchase Price: $990,000.00
Down Payment: $188,000.00
Mortgage Term: 30 years
Interest Rate: 6%
Monthly Mortgage Payment: $4,808.40
Cost Benefit Analysis
Calculations are based upon a 3% annual inflation rate over the course of 1 years (the time between now and when you estimate you would sell home). Please allow for slight rounding differences.
Renting Costs Amount Buying Costs Amount
Total Rent: $254,838.52 Total Interest Payment: $232,799.65
Insurance Payment: $2,400.00 Total Closing Costs: $14,020.00
Total Property Tax Costs: $55,712.69
Total Maintenance Costs: $6,753.05
Total Homeowner’s Insurance Costs: $27,856.34
Total Association Dues: $0.00
Total PMI Costs: $0.00
Cost of selling home: $68,860.88
Total Rent Costs $257,238.52 Total Buy Costs $406,002.62

Renting Benefits Amount Buying Benefits Amount
Interest Earned on Invested Funds $57,244.12 Tax Savings: $88,959.70
Home Appreciation: $157,681.33
Total Rent Benefits $57,244.12 Total Buy Benefits $246,641.04

NET COST OF RENTING: $199,994.40 NET COST OF BUYING: $159,361.58
Summary: You will save $40,632.82 to buy instead of rent.

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