You are flipping through your local newspaper, and in the classifieds section and ad just catches your eye. The ad reads, ” This diamond property can be yours “, with a picture of an astonishing structure. Reading into the details, it states you can purchase the home for only $300,000 with an initial down paymentof $60,000. Another option is to rent it for approximately $1400 per month. Taking out your calculator and tools, you figure out what would be a better option. Let’s do the math together here, if you make a down paument of $60,000, you would need a mortgage of $240,000. At an interest rate of 5%, over a 25 year loan period, your monthly payment would be $1403 (Calculated using MortgageTonights’s Mortgage Calculator). The ad details on the taxes (municipal and school), which equals $291 on a monthly basis. So, your total output for the home would be $1694. That would be $294 more than if you rented the home. This is when you ask yourself, what should I do at this point? Should I buy or rent?

The first option that would hit any mind would be to rent the home. Now, lets out the extra $294 aside, and look at the benefits of renting the home;

• You can move if you don’t like the location, within a short notice.
• Renting is a smaller hit on your monthly expense.
• The stress in money management is lower, your home and credit rating is not on the line.
• If you are someone who relocates often, it best to rent.
• Renting will hold up less money. If you have a business with your money in it, its best to rent.
• Your landlord is responsible for maintenance, not you.
• Property value can drop immensely. Rent doesn’t.

Now, lets put that $294 together, to sum up the $1694, and look at the benefits of buying a home;

• Most of the time, property value will increase, profiting you.
• You have control. You will not be forced to relocate due to rent hikes.
• Tax benefits are awesome. All capital gained is yours.

This is where we get in-depth on the study. Now, it all depends on how long you decide to live at the location, and if you plan on selling the house in the future on passing it on to someone. Let’s take a typical situation, where the buyer says he will move in twelve years, to go live with his relatives in another country. Firstly, the renting cost involved would be ($1400 x 12 months) = $16,800. This is the total sum of money in the first year. Next year, if there is a rent hike, he would be paying more. We used a rental cost model to predict that each year would show a 0.02% rate increase. This brought up the six digit figure $202,295, which represents the total cost of renting a home for twelve years. Secondly, the home mortgage loan payment cost for twelve years would be ($1694 x 12 months x 12 years) = $243,936. So, you now see a $41,641 difference. You pay 41K more, however, the price of the home would be higher than what you paid for, and it will even out or go higher than 41K. So, both cases would be fine to pursue. You will have to chose which is best for you. Would you be giving the home to someone, IE: children, relatives, spouse.. There are many factors that come into play when making major decision like these. It’s best to think about it with a few professionals and family by the side.

Download Our Rental Cost Model, It Will Show You How Much You Will Pay In Rent Over Certain # Of Years

3 Comments »

1. 

   nice post. thankz for xls file

   Comment by Paula — January 4, 2009 @ 5:28 pm

2. 

   dloaded the file. I might give this to my sister. She still lives in an appartment, have been telling her to buy a home. Maybe this will teach her :p

   Comment by Macice — January 11, 2009 @ 6:02 pm

3. 

   [...] and upkeep. Suze Orman, a financial analyst for CNBC, points out that the American dream of home ownership can turn into a nightmare for those buyers that get in over their heads. The wave of foreclosures [...]

   Pingback by Is it better to rent or buy in the current economy « lagem-ba.com - News — January 20, 2009 @ 2:39 am

RSS feed for comments on this post. TrackBack URL

Leave a comment

Name (required)

Mail (will not be published) (required)

Website