Buy versus Rent

 

Everyone wants a roof over their head. There are several options to accomplish this - buy a house or condo, rent a house or apartment, buy into a cooperative, or sponge off friends or family. Typically the decision boils down to "buy or rent". In most cases, one finds that the best option is to buy. This page provides some considerations that may help you make an informed decision.

 

 

 

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HomeBuyerConsultants.Com is a Service Mark (SM) of HomeBuyerConsultants.Com Inc.                             Site by HomeBuyerConsultants.Com Inc. Webmaster
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Revised: February 04, 2008 .

 

 

 

 

Buy versus Rent Quiz   (Answer questions Yes or No)

1.Are you qualified to get a mortgage?

  -A lender can pre-qualify you quickly (sometimes while on the phone) at no cost. A little later, they can tell you if you are pre-approved. (Some lenders are now doing pre-approvals on the initial phone call.)

2.Is there a high probability that you will stay in the home about 5 years or that if you move, your employer will cover the expenses?

  -Typically it takes about 5 years to break even considering the expenses to buy and sell a home.

3.Does the price of homes in the area typically increase annually enough to exceed the rate of inflation?

  -Some areas may be decreasing in value or have good probabilities of significant decreases in market value and lead to a loss of your equity in a home.

4.Are your current itemized tax deductions without home ownership deductions close to or exceed the standard deduction on your Federal taxes?

  -A major plus for buying over renting is the capability to recoup some of the property taxes and the interest paid on your mortgage through tax deductions.

5.Are the annual costs of rentals that satisfy your needs more than the annual costs of buying a home?

  -If the annual cost of renting is less than the annual cost of owning a home (including additional deductions for property taxes, income taxes, and appreciation), you may be better off renting and investing your money elsewhere. (See Example)

If you answered yes to all the above questions, it is highly probable that buying is the best decision.

If the answer to number 1 is no, you should inquire as to why and work on correcting the problem if possible.

If any answer to numbers 2 through 5 is no, consider whether you should buy, however, you may have personal goals or considerations that out way monetary considerations.

 

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The Home Page URL for this site is  http://www.homebuyerconsultants.com
HomeBuyerConsultants.Com is a Service Mark (SM) of HomeBuyerConsultants.Com Inc.                             Site by HomeBuyerConsultants.Com Inc. Webmaster
Copyright © 2000-2008  HomeBuyerConsultants.Com Inc.   All rights reserved.
Revised: February 04, 2008 .

 

 

Buy versus Rent Example   

 

This is an example calculation estimating possible values of renting a 3 bedroom apartment for $650 per month versus owning a 3 bedroom home based on a $100,000 purchase price, 10% down payment, 8% interest rate, and a $661 monthly payment for principal & interest.

 

First Year Fifth Year

 

Rent

Own

Rent

Own

HOUSING COSTS

RENT

$7,800

$0

$39,000

$0

PRINCIPAL

$0

$727

$0

$4,266

INTEREST

$0

$7,200

$0

$35,370

INSURANCE

$80

$300

$400

$1,500

PROPERTY TAXES

$0

$600

$0

$3,000

ASSOCIATION FEES

$0

$0

$0

$0

MAINTENANCE

$0

$500

$0

$2,500

 

 

 

 

 

SERVICE COSTS

GAS HEAT

$0

$420

$0

$2,100

ELECTRICITY

$480

$480

$2,400

$2,400

WATER & SEWAGE

$0

$192

$0

$960

GARBAGE PICKUP

$0

$95

$0

$475

TELEPHONE

$300

$300

$1,500

$1,500

CABLE TV

$300

$300

$1,500

$1,500

 

 

 

 

 

 COSTS SUB-TOTALS

$8,960

$11,114

$44,800

$55,571

 

 

 

 

 

INCREASED VALUES OR SAVINGS

 

 

MORTGAGE EQUITY ACCUMULATION

$0

$727

$0

$4,266

MARKET VALUE GROWTH  (3% per year growth )

$0

$2,187

$0

$11,611

TAX SAVINGS    (28% tax bracket)

$0

$2,200

$0

$10,700

 

 

 

 

 

TOTAL INCREASED VALUES OR SAVINGS

$0

$5,114

$0

$26,577

 

 

 

 

 

TOTAL FINAL EFFECTIVE COSTS

$8,960

$6,000

$44,800

$28,994

ACCRUED VALUE OF OWNERSHIP

$2,960

 

$15,806

(Cost of Renting minus Effective Cost of Owning) 

for

1 Year

 for

5 Years

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The Home Page URL for this site is  http://www.homebuyerconsultants.com
HomeBuyerConsultants.Com is a Service Mark (SM) of HomeBuyerConsultants.Com Inc.                             Site by HomeBuyerConsultants.Com Inc. Webmaster
Copyright © 2000-2008  HomeBuyerConsultants.Com Inc.   All rights reserved.
Revised: February 04, 2008 .

 

 

Top Ten Reasons to Purchase a Home

10. Buy while my credit report is in excellent shape.

9. Buy while my job is secure.

8. A inflation protected investment.

7.Tax deductions.

6. Annual savings from not paying rent on equivalent living quarters.

5. Can be used for rental property for an income flow.

4. Have something you can borrow money against, if necessary, via a Home Equity Loan.

3. Something you can sell. You will have equity - an amount convertible to cash in the future.

2. Pride of ownership.

1. Empowerment and independence by owning your own 'space'.

 

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The Home Page URL for this site is  http://www.homebuyerconsultants.com
HomeBuyerConsultants.Com is a Service Mark (SM) of HomeBuyerConsultants.Com Inc.                             Site by HomeBuyerConsultants.Com Inc. Webmaster
Copyright © 2000-2008  HomeBuyerConsultants.Com Inc.   All rights reserved.
Revised: February 04, 2008 .