Rent vs. Buy

Use this rent versus own calculator to help you decide if buying a home is the right decision to make at this point in your life. This decision depends on many factors such as how much the home costs, how much you are paying in rent, and how much you will have to pay annually to keep your home and maintain it.

 

Rent vs Buy Calculator

Mortgage Calculator © ML

What You Actually Pay For

Whether you are renting or buying, there are different costs that you must factor into your decision. Some are monthly, some annual, and others variable. These are actual cost outlays on your part and you must calculate expected increases, inflation, investment returns, and other such things.

Renting:

  • Monthly: Rent and renter’s insurance (optional)

Owning:

  • One-time payments: Down payment, closing costs
  • Monthly for 15 or 30 years: Mortgage payment (Principal, interest, PMI)
  • As long as you own: Taxes, insurance, maintenance

As I mentioned, in my situation the monthly payments would be about the same. So the cost differences I am looking at are the one-time payments and perpetual payments involved with owning.

Tax Benefits

Your decision to rent or buy could carry different tax implications. This is based on the United States tax code.

Renting:

  • None

Owning:

  • Deduct interest on mortgage, PMI, and property taxes as long as you itemize. Rent it out? Go ahead and deduct insurance, maintenance, and depreciation on the portion rented, too… no itemization needed.
  • You probably won’t wind up paying capital gains tax on the sale of your house.

The US Government likes to use tax incentives to motivate people to do things they deem worthy. In this case, their is an obvious preference for people who own. The calculators account for the mortgage interest that you are able to write-off at the marginal tax rate you input. They usually assume that you will meet the requirements to avoid paying capital gains tax on your house.

Investment Opportunities

This is one of the biggest opportunity costs that gets examined in rent vs buy calculators. The decision to rent or buy has more to do with the investment factors than the actual payment amounts.

Renting:

  • Take the amount you would have used for a down payment and put it into an index fund or other investment vehicle depending on your risk tolerance.
  • If your mortgage payment would be greater than your rent, take the difference and invest that, too.
  • You are sacrificing the main benefit of renting if you do not invest this extra money.
  • This allows you to start investing immediately, serves to not “tie you down” to any location, and is generally less hassle since you don’t have to worry about maintenance.

Owning:

  • Your house is your investment. As you pay it off, you build equity. And as you live in it, it (should) appreciate in value.
  • How do you “capture” these gains? Sell your house and receive your equity, live payment free once the loan is paid off, or a reverse mortgage (not a good idea in MOST circumstances).
  • You can kill this investment opportunity if you buy the house for more than its worth or agree to unfavorable interest terms as we saw with a lot of people who got ARM mortgages.
  • Classic definition of leveraging money: You put x% down, but the appreciation is on the entire value of the home… which includes the banks money.

Rent goes up as time goes on, but your mortgage payment is constant. If you are staying in a geographic area for a period of time, a rent vs buy calculator may lean towards buying. If you are renting, you need to be more vigilant about investing the money to ensure that you aren’t leaving too large of an opportunity cost on the table.

If you would like to see if you qualify to purchase a home call Billi West with Network Funding TODAY @ 904.449.9460.

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