My friend Bob Sullivan just published a post that led to an online Is It Better to Rent or Buy calculator. I love it.
So many people think buying a house is the ultimate goal, it’s not. They think they own their house, they don’t till the mortgage is fully paid. And people never consider the hidden costs of homeownership when deciding if buying is really the smarter move.
The calculator page provides this example advice:
Let’s say you’re considering a $350,000 condo in a big city with $361 monthly fees, and you’ll stay for five years. You get a 30-year mortgage at 4.03 percent, pay $5,670 in property taxes and $14,000 for closing costs. You’ll pay $1,610 for homeowners insurance and 1 percent of the home’s value for repairs every year. The housing and rental markets each appreciate 3 percent a year.
In this case, the break-even point is $1,909 in monthly rent—meaning that if you can find a similar place for $1,800, all other things being equal, you should rent. If rent runs $2,000 or more, the sound financial move is to buy.
Over time, buying becomes the better deal. Stay for 10 years, and the break-even rent is $1,600. The reverse is also true: Sell within three, and the break-even jumps to $2,310.
Click here to try the rent vs. buy calculator for yourself.
And I bet I wind up linking to this calculator a lot to help people make that decision is buying a home is really a smart financial move for them.