New Insights on the Buy vs. Rent Equation

I was very recently intrigued to read a New York Times article called "Is it Better to Rent or Buy?”. Please click here to see it for yourself.

The article contains a number of interactive calculators to demonstrate the comparison between renting and buying, focusing on the point where the cost of renting makes that option the better one.

There are a wide range of comparison parameters to adjust. They include home price, how long you plan to stay in the property, your mortgage details, possible future rent, investment and inflation rates, taxes, closing costs, maintenance and fees, plus the additional costs of renting.

While there is inevitably a degree of local inaccuracy here as the figures are using national averages, and there will be discussion as to how closely some factors are related to each other, when we played around with the calculators, what struck us again and again was the cost effectiveness of buying.

We weren't at all surprised by these findings, however.

Every renting survey appears to envisage a future where rents will continue with steep rises. This contrasts starkly with a fixed rate mortgage that will afford you the same monthly cost for the duration of the home loan. It's almost inconceivable to envision any foreseeable future where rents will gradually fall, not least because statistics also show that there will continue to be so much demand for them, in recognition of the fact that not everyone is able to make the leap to home ownership, if they so desire.

Another key consideration is that renting represents no investment value for you, whereas a home may start to provide equity almost as soon as you move in (always remembering, of course, that values can vary over time).

I sometimes wonder how many renters stop to consider how greatly their monthly rental fee benefits landlords, who are able to pay for the costs associated with owning the home via their rent, in addition to enjoying watching their equity grow as property prices continue to climb.

Given that the future of renting is so secure, landlords can feel even more confident about periodically increasing your rent. As in any selling/purchasing scenario, the price of goods and services directly relates to what the customer is able/willing to pay for them. I'm sure that's a decisive reason behind why we've seen rentals rising by such high percentages in the past few years.

Let's also bear in mind that a national survey last year revealed that average home equity more than doubled between June 2011 and June 2016. And, as I also mentioned in last week's blog, California had seen the joint highest equity growth nationally between June 2015 and June 2016, with an average gain of $29,000 over those 12 months. If you've been renting during those timescales, you've seen none of those benefits, but your landlord most definitely has...

Aside from the financial considerations, there are of course so many lifestyle enhancements associated with owning a place of one's own. No calculator has yet been created that can adequately place a value on having your own private space that's yours to do with and enjoy as you wish. You could even say those aspects are actually priceless!

I hope you have some fun with the NYT article, as it does provide some insight into the buy/rent equation. Why not also contact us today to explore your options in greater detail related to your specific situation.

Dominic Nicoli