4/22/2015
2015 Buyer Considerations – Rent or Buy? That’s a No-Brainer
Every day millions of people struggle with the decision of whether to rent or buy a home. The single-most important question to determine the answer to this question relates to the impact purchasing or renting will have on a buyer’s life. In other words:
- If I buy a home now, what would it mean to me? And conversely;
- If I rent a home now, what would it mean to me?
After answering the questions above, the benefits on both sides can be contrasted and compared. Aside from the emotional benefits, the single-most important consideration should be the long-term financial benefit of home ownership. When a person decides to rent, the money they pay for housing is actually paying off an investor’s mortgage. It’s what investors call, “using other people’s money.” The problem with this strategy is that at the end of the day, a renter has nothing to show for the money they’ve spent monthly.
On the other hand, when a home is purchased, in addition to the emotional benefits and tax savings (mortgages can be deducted from taxes to provide a tax refund), the profit from long-term appreciation is usually quite substantial. Review the following appreciation charts that consider the purchase of an average home at $200,000. If a person were to rent for 30 years, they have nothing to show for the monthly payments they’ve made. The same person purchasing a home will have their net worth increase by $125,778 over 10 years, $330,659 over 20 years, or $664,387 over 30 years. That’s not too bad given the fact that most people save next to nothing. The third critical question that you must ask yourself before deciding to rent or buy is:
“Do I want to have hundreds of thousands towards retirement by buying, or do I want to rent and pay for someone else to have hundreds of thousands in additional net worth?”
| Year | Fair Mkt Value @ 5% Appreciation | Year | Fair Mkt Value @ 5% Appreciation | Year | Fair Mkt Value @ 5% Appreciation | ||
| 2015 | $200,000 | 2026 | $325,778 | 2037 | $530,659 | ||
| 2016 | $210,000 | 2027 | $342,067 | 2038 | $557,192 | ||
| 2017 | $220,500 | 2028 | $359,171 | 2039 | $585,051 | ||
| 2018 | $231,525 | 2029 | $377,129 | 2040 | $614,304 | ||
| 2019 | $243,101 | 2030 | $395,986 | 2041 | $645,019 | ||
| 2020 | $255,256 | 2031 | $415,785 | 2042 | $677,270 | ||
| 2021 | $268,019 | 2032 | $436,574 | 2043 | $711,133 | ||
| 2022 | $281,420 | 2033 | $458,403 | 2044 | $746,690 | ||
| 2023 | $295,491 | 2034 | $481,323 | 2045 | $784,025 | ||
| 2024 | $310,265 | 2035 | $505,389 | 2046 | $823,226 | ||
| 2025 | $325,778 | 2036 | $530,659 | 2047 | $864,387 |
Results of renting after 30 years = $0.00 Results of buying after 30 years (with mortgage paid off) = $864,387
Which would you be most comfortable with?
