Rent Versus Buy
Posted by admin on Aug 30, 2008In the short run, renting can make more financial sense than buying, in terms of how much shelter you can afford for a given price.
Rents tend to accurately reflect the free-market pricing of housing simply as shelter. But the ownership cost of a house or condominium is a combination of both the dwelling’s shelter value and investment expectation.
So at any given moment, you can usually rent an apartment or house for less than the monthly costs that a buyer of that property would pay to carry it through the early years of ownership.
This explains why many young people can’t afford to own the very condominium they’ve been renting with no financial strain, or why a young family might be able to rent a much fancier, more spacious house than they could buy.
That’s the short-run picture, but the long-range view is different. Over time, rents tend to rise. But, if you have a fixed-rate mortgage, the basic cost of owning your own home—the monthly payment of principal and interest—stays the same. This relatively stable cost, combined with price appreciation, is what makes homeownership financially attractive in the long run.
Until the “long run” arrives, however, you may have to make some sacrifices as a homeowner. You may have to put up with less space if you have to pay more to own a small home than to rent a larger one. To find a house you can afford, you might have to move to a location farther from your job and favorite haunts; that may result in the need of a second car, extra travel costs and a change of lifestyle.