Rent vs. Buy – Which is Right For You?

The basic argument behind the Rent vs. Buy debate is this: why “throw away” your money paying your landlord’s mortgage, when you could be using the same money to build equity in your own appreciating asset? The counterargument is this: home ownership is more expensive than people think, and you may be better off saving your money and leaving the home ownership headache to your landlord.

While home ownership has been held aloft as the American Dream, this is not something anyone should take for granted. Financial security and goal attainment are also really important values, and no one should pursue home ownership at any cost.

So how do you know if the time is right for you to make the leap from renting to owning? Perusing the articles and tools on Real Savvy Real Estate is a great start. So is running the numbers to see what the jump in monthly cost would be if you bought a home (and even if your mortgage is exactly the same as your rent, there will be a jump in monthly cost).

To get you started, below is the Mac Daddy of Rent vs. Buy calculators, brought to you by the New York Times website. Never in the world has a more elegant, useful calculator been conceived. Behold:

NYT Rent vs. Buy Calculator

You can tinker with the advanced settings to the right of the screen, and you’ll see that the calculator takes nearly every possible factor into account–taxes, opportunity cost (if you’d invested your down payment money), appreciation, inflation, the works. Since buying a home requires transaction costs (closing costs, down payment, etc), which must be taken into account alongside the monthly cost, the calculator spits out a “breakeven point” at which you will have recouped these one-time costs. This breakeven point represents the point at which buying is a better deal than renting. Click the image above to get started, and have fun with this epic calculator.

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Bonus tip: Suze Orman has a great idea to help you figure out if you can really handle the extra cost of home ownership. Once you’ve perused real estate listings, played with our online tools, and have an idea of how much your montly cost will be, put the difference between your current rent and your projected future cost into a separate savings accoung for 6 months. In other words, pretend that you’re already paying your mortgage, taxes, insurance, and maintenance costs. This will give you a better sense of how well you can fit the extra cost into your monthly budget, rather than just assuming things will work themselves out.