?Buy or rent? Which is better financially?

rent-buy1?Buy or rent?

Every potential home buyer has to stop for at least a moment and consider this question. Let’s look at one of the many financial reasons to buy instead of rent: the housing expense moving forward.

Which is better financially?

According to the latest Existing Home Sales Report from the National Association of Realtors, the median sales price of a home in the U.S. is $184,300. The mortgage payment (principal & interest) on that purchase would be $661.89 assuming a 20% down payment and a 3.5% mortgage interest rate. Currently, the median asking rent in the U.S. according to the Census Bureau is $717 a month.

It’s true that the two payments do not necessarily reflect the housing cost on a similar residence. That is not the point: the fact is that the monthly housing expense on a median price home is $661.89, and the median rent is $717. And, the big question is ‘What will happen to these costs over time?’

Monthly housing expense remains the same for next 30 years

The principal and interest portion of the mortgage payment is locked in for the next 30 years. Real estate taxes may be included in the payment and will increase to some degree over that time, and, the homeowner will have repair costs. However, homeowners also receive many tax advantages.

The main point is: actual monthly housing expense remains the same for the next 30 years.

What will happen to a rent payment the next 30 years?

What about a rent payment? The best thing to do to predict the future is to study the past. Here is a graph of the median asking rent since 1988 based on Census Bureau data:


Conclusion: Rents will likely follow their historically pattern and increase dramatically over the next 30 years. Buyers have a choice: either lock in your housing expense or deal with the uncertainty of rental increases.


    • Charlene on December 28, 2013 at 4:31 am
    • Reply

    Are the Rent-to-Own ads real? I have researched and it sounds like there are some valid ones and owners are resorting to this instead of selling because of the market but how do you know which are which and is it worth it because I also read the bad where the contracts are not legal and the renters end up losing all the money that they put down and/or the money that supposedly was supposed to be set aside and/or the taxes not paid. What are your thoughts on this subject?

  1. Hi Charlene, and thank you for your question. The rent-to-own path is tricky but can work.

    At this point, in some markets that are ‘hot’, it’s likely not an option because properties are appreciating 7-12% a year. So, if you had a rent-to-own contract, at the end of five years the house could conceivably be much more valuable than when the original deal was written. It doesn’t make sense for a seller.

    That said, if you found such an opportunity in your community, solicit the assistance of a seasoned Realtor with this type of experience, and/or a Real Estate lawyer to help you through the process. You need professional help to avoid some of the pitfalls that you mention in your post. Good luck!

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