Is it better to Rent or Buy?

[ArmorPierce]

Hey guys. I decided I wanted to do some analysis of renting vs purchasing at my local for small homes. I threw the below together to give me a way to compare and come up with a rational financial decision.

I wanted to take into account the savings of renting that you could use to invest in stocks/bonds/what have you and compare it to what we have after the 30 year mortgage was done.

I was surprised to see that just taking into account the costs and where I you will be at after 30 years from this single analysis, it seems like purchasing a home is the way to go.

Do you guys think I'm missing anything from my chart or did not take something into account or anything I could have done differently?

What do you guys think about buying vs renting?



The numbers would be a bit off for everything but the 8% fyi.

I didn't include renters insurance because the cost seemed negligible.

[General Zod]

There's plenty of other factors to consider. Do you want to be stuck in the same area for 30 years? What if the company you're with goes under? What if the property rates plunge and you're left owing more than the house is worth? Do you think the bank would refinance or would you be stuck?

[weemadando]

Also, how long term are you thinking? Is a house in your area sitting on potentially valuable land that you could subdivide or sell later?

You're also looking at "for the course of the mortgage" with 30 year figures. Don't forget that after 30 years, you have an owned asset, that you can live in for only "up keep" costs. That's the big winner about buying a house - eventually you can just pay your rates/body corporate and that's all, no more mortgage or rent.

But there's a shitload to consider on the way there.

[Sea Skimmer]

The number one advantage of a house is you can modify it any way you want and can afford, and can do whatever you want in it. If you want a deck and like dogs this is a plus, if you just kind of want a place to live, it doesn't mean very much,

[weemadando]

God, fuck yes to that.

Or alternately - if shit is broken YOU CAN FIX IT. You aren't tentatively trying to find the balance between asking for things to be fixed and pissing off the landlord/managing agent so much that they deem you a "trouble tenant" and don't renew your lease an refuse to provide references.

[Col. Crackpot]

you are also forgetting the fact that both mortgage interest and local property taxes on your home are federal tax deductions. So additional savings there. You also have the benefit of payment stability.

[Alferd Packer]

you are also forgetting the fact that both mortgage interest and local property taxes on your home are federal tax deductions. So additional savings there. You also have the benefit of payment stability.

Yeah, your rent is going to go up every year. Mortgage payment never changes (property tax does, though). Hopefully, that translates to your mortgage payment being a relative drop in the bucket towards the end of your loan, as (again, hopefully) your income rises over the years.

[Broomstick]

Consider if you are able to perform the upkeep on a home. If you can't do it that will increase your maintenance costs because you will need to hire someone else to do it.

This was a factor in my household - there are many things my spouse simply can't do to disability in regards to home upkeep, and I have limited time and energy due to having to compensate in areas he needs help. Add in some skill in lease negotiation, living in an area where if a landlord doesn't fix shit there is a mechanism for doing it yourself and then taking the cost out of your rent (which does require some precise steps to be legal, but it does exist), and a few other things and really, I don't find renting much of a problem. Oh, and my rent hasn't gone up in over 10 years. Not one cent.

Granted, not everyone is going to have a rental situation that good. Well, buying isn't always wonderful either. Sure, home ownership can be a good thing, but renting can also be a viable option and for some people has advantages. As already said, there are factors other than just raw costs.

[General Zod]

you are also forgetting the fact that both mortgage interest and local property taxes on your home are federal tax deductions. So additional savings there. You also have the benefit of payment stability.

Yeah, your rent is going to go up every year. Mortgage payment never changes (property tax does, though). Hopefully, that translates to your mortgage payment being a relative drop in the bucket towards the end of your loan, as (again, hopefully) your income rises over the years.

As long as you get a fixed rate loan. Adjustable rate loans could be murder if the banks decide to make an increase and your salary doesn't summarily go up.

[aerius]

http://www.canadamortgage.com/calculators/rentvsown.cgi

There's a ton of other calculators on the net, and the NYT had one that specifically calculated the breakeven period given the costs of rental vs. ownership. Unfortunately I can't find that one at the moment, I don't know if they still have it.

Here in Canada we don't get tax write-offs for mortgages, we get some tax credits for both ownership and rental but it doesn't add up to much. For me it was definitely cheaper to rent a 900 square foot apartment than to own a 1100 square foot home. As soon as we bought the home we were behind and unless we make 0% on all of our savings & investments we're never catching up. 1% would put the breakeven for rent vs. own at 15-20 years and 2% would put renting ahead for good. For someone outside the GTA where homes are still affordable it gets a lot better, and there's probably places such as Vancouver where it's worse.

[Borgholio]

Keep in mind also that if you buy a house, you CAN rent it out to someone else. You don't have to be totally worried about being stuck there because you can rent out the house, earn a small monthly net profit, and still build equity in the place. One of my family friends had a ton of cash saved up and it wasn't doing anything, so he bought a small condo out in Palm Springs and is renting it out for a few hundred a month more than the mortgage costs.

[ArmorPierce]

Hey guys I've made some updates.

Can anyone look at my amortization schedule for taking into account the rent increase and let me know if there s any glaring logical mathematical errors?

https://docs.google.com/spreadsheet/lv? ... alse&gid=2

[ArmorPierce]

Below gives a better view and you can see the formulas.

https://docs.google.com/spreadsheet/ccc ... tMUE#gid=2