Renting VS Buying

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There are so many variables when looking at the best choice. For starters, will the apartment you buy be as nice as the house you buy? I’ll attempt to discuss many of the common variables found when comparing the two scenarios. First lets look at what we will be spending on a monthly basis for a 3 bedroom apartment and a 3 bedroom house worth $200 000 with a 40 year mortgage.

*The average rent for a decent apartment in my area is roughly $1100 not including utilities and an extra $50 a month for an extra parking spot. The total comes to $950.

*The monthly mortgage payment for a $200 000 dollar house with a 40 year mortgage is $1031.54. Now we have to factor in yearly insurance of $450 and yearly property tax of $1900. The total comes to $37.50 + $158.33 + $1031.54 = 1227.37.

So we have a difference of $277.37

Now as a responsible individual, that person renting would invest that money every month for 40 years. The investment will be put into a low risk portfolio making on average 6% per year. If we calculate this over a 40 year period we get a grand total of: $193176.81 versus $200 000 for the house.

Theory versus Reality

If you look at the theory behind it all, it looks pretty close since I didn’t factor in repair costs, landscaping costs or the extra cost for utilities for the house because I believe the extra expenses would be offset by the increase in the value of the home. Which brings me to my second point, there is a possibility the market flops and you lose a portion if not all of your investments as a renter or the housing market crashes to the point where your house has absolutely no value as a home owner. Both scenarios are far fetched but they could happen to a lesser degree. There are hundreds of questions and scenarios you have to think about before making a decision…………

*What if I average 2% per year or better yet 12% per year in my portfolio ?

*Can I live in an apartment my whole life?

*Will I invest that extra money?

*What will inflation be like in 20-40 years from now?

Based on my personal experience, I would have to stick to buying a home over renting because I value the home not only for monetary reasons, but for family and comfort reasons. Whether you agree or disagree, there is no right or wrong answer. It comes down to personal preference and what you feel comfortable with.

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Filed Under Home Buying, Real Estate 

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