Tuesday, September 2, 2014

Are You Better Off Renting… Or Not?



There is a time to rent and a time to buy. Figuring out which is best for you and your situation means getting out the calculator and doing some math.

When you first make the move out of your parent’s home and into your own place, the logical decision is to rent a place. A few years later and probably things have changed. Life gets busy and you might forget to re-evaluate that monthly rental payment. It just might not be the best use of your money. 

Realty Trac reports that one-third of Americans currently reside in a housing market where leasing a three bedroom home costs more than 30 percent of the monthly median income, which is normally considered the benchmark for affordability of owning a home.

Half of American renters give up more than 30% of their income on leasing. That’s up from 19 percent a decade ago.  The number of Americans renting has increased in the last 10 years and the median national rent has also increased. 

Here’s where you have to do your homework. Compare your place to other places that are similar and first determine if you are paying market rent. If so, is your rent more than 30% of your income? If you are under the 30% benchmark, but are still feeling squeezed every month (and let’s be honest here), then could it be worth compromising on location or quality in order to own your own home? If you are on the fence it might be worth it for you to run some numbers. 


  1. Find two similar homes, one for rent and one for sale. 
  2.  Divide the sale price of the one by the annual rent of the other;
  3.  Sale Price/ Annual Rent = Price per Rent Ratio
  4.   A PRR of 1-15 is a sign that it might be better to buy than rent.
  5.    A PRR of 16-20 suggest it might be better to rent than buy
  6.    21 or more means renting might be best.

Reasons to buy include:
  •     Stable Income
  •    Available cash for a down payment and extra for emergencies.
  •    Plan to stay in the house for a minimum of three years.
  •     Enjoy tax deductions available to homeowners.
  •   Expected home value increase.
In addition to the financial reasons outlined above, owning a home gives you security in knowing that you can move when you want to move, and not when your landlord determines it. The ability to remodel or re-decorate on your own terms. Pride of ownership that renting just can’t satisfy.