Q&A: Should I buy or rent my house?

Question:

Perhaps there’s no answer to this but I’d love your opinions:

I live in a very expensive town with high RE taxes. A very basic 3 bedroom house in this area fetches at least $400k minimum. (And would have a yearly real estate taxes of approximately $6,500 to $7,500 each year.)

I plan to live here for at least 5.5 years (kiddo is in 7th grade).

Just got my first near-6 figure job in August.

Many people are telling me to buy because it builds equity. However, if I buy something that costs 1.5 times as much as an equivalent house relatively nearby, aren’t I just accruing a huge amount of added debt at a rate I don’t need to be as compared to if I keep renting for the next 5.5 years?

Comparison; current rent is very low $1375, mortgage for a $400k home is about $2500/month including taxes.

So is it really worth buying? Is renting more economical because the total I save each month can be better invested, or does “equity” on a mortgage trump that philosophy?

Answer:

Plugging in some of the info that you provided, the Buy vs Rent calculator that I frequent suggests that you would be better off renting, rather than owns. Well, at least based on the information that you provided. It looks like, based on staying in your house for 6 years, the break-even point is around $1650. That is, if you can rent a place for less than that, you would be better off renting instead of buying. You mentioned that you could rent a comparable house for about $300 less than that. That’s about 18% less each month.

If you were will to stay in the house longer, it looks like your break-even duration point is about 13 years — that’s more than twice the amount of time that you had indicated that you expect to stay in the house. If you think you will stay in the house longer than 13 years, you’d be better off buying. Don’t immediately assume that you will move in six years. You may end up staying where you are for many more year or many fewer years. I just heard from a neighbor who expected to stay in her house for 5 to 10 years, but her landlord just told her that she needs to move at the end of the month. At the other end of the spectrum, I expected to stay here where I am for two years and I’ve been here for more than two decades, so this is a hard variable to truly forecast.

There are many buy vs. rent calculators on the internet. Several are more simplistic; easier to use than this one, but I think this one offers a reasonable level of detail making the analysis more useful. You could enter all the info yourself for a more comprehensive analysis: http://www.nytimes.com/…/upshot/buy-rent-calculator.html

buy-vs-rent-ny-times

originally published on Facebook

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