To understand the rent vs. buy
decision, analyze your personal
situation. The first variable is
your current rent. The decision
to buy rests on the advantages
accumulated beyond the term of
your lease. You should estimate
the annual rent increases that
you will have to pay if you rent
longer than one year. Then
factor in your renter's
insurance. While renter's
insurance is on contents, this
amount will offset some of the
insurance that you will pay as a
homeowner. Normally utility
costs are not factored in unless
you are in a unit where the
landlord pays all or some of
your utility bills.
When calculating the buy side of
the decision, factor in the
purchase price. You should
calculate an appreciation rate
for the property based on a
percentage of the purchase
price. This will have to be an
estimate because it is a future
event. Consider also the savings
rate that your down payment
would earn if you continued to
rent and left this money in
savings.
Estimate the number of years you expect to own the property. This figure will be personal. If you are starting your career or are in a job where you expect advancement, then it is likely that you will sell the property sooner than later. Typical reasons for selling include changes in marital status or family size, anticipated job transfer, and upward or downward employment growth.
Consider the yearly expenses in owning a home. You will need the interest rate and term of the mortgage, annual property taxes, and estimated annual maintenance. An older home will require more maintenance than a newer one. Finally, the loan expenses when you purchase, and homeowner's insurance and selling costs when you finally liquidate the property are factored in
