Home Business & Finance The handy investing answer book
Look at all cash costs by year for the time you plan to live in a new place, and try to compare these costs to see what choice makes more sense from a cash outlay perspective. You also should consider the tax advantages of using a mortgage, the lost opportunity for holding the money you would use for a down payment in some other form of investment, the cost of utilities if you buy a house compared with being (sometimes) included in the rental lease, and the ongoing house maintenance for which you would not be responsible if you chose to rent.
When you rent a place to live, you may expect to pay for moving costs, furnishing costs, possibly some or all utility costs, rent, a broker's fee for finding the rental, and renter's insurance. You should also consider the lost opportunity if you used some of the expenses in some other way. Remember to add back into the equation the return of your security deposit, typically Vh. months' rent paid upon signing the lease.
You should consider the price paid for the house if you pay cash, or the amount you put down if you obtain a mortgage, closing costs, appraisals and fees, moving costs, and furnishing costs (if necessary). For costs you might incur during the course of a year, you might expect to pay for maintenance, property taxes, homeowners' insurance, homeowners' association fees (HOA fees for a condominium), utilities, and any renovation work that needs immediate attention. If the house appraises out for more than you paid for it, congratulations on earning an immediate benefit to purchasing the house! You will know this quite some time before you actually close on the purchase of the house. Also consider the lost opportunity of having to redirect money from other investments such as mutual funds that may have been earning a certain decent return per year in order to purchase the house.
You also should consider the tax advantage of the interest on the mortgage deduction. Consult your tax adviser or real estate professional, who can give you a rough idea of the benefits, depending on your status and income during that year. As for determining the approximate cost of your property taxes, you may contact your local tax authority, give them the house's address and sale price, and ask for a tax estimate. Remember that local property taxes may be quite different from what is reported on the real estate listing information; they are based upon the last sales price, as well as local tax codes that may have changed over time.
If you plan to sell the house after a relatively short period of time, you need to consider many expenses, such as broker/real estate sales commissions and payment of the original mortgage balance due.
Are there other "rent versus own" tools or calculators available online that may assist me in making these types of analyses?
Dozens of sites offer rent-versus-own tools or calculators that use different variables in their models (some quite detailed), allowing you to enter comparative data into each field and quickly see the effect of changing the amount of rent or the price of a house so you may decide whether to rent or own. Some calculators may consider such factors as rapid increases or decreases in home prices over the years, current mortgage interest rates, and changes to tax codes. Investigate the currency of the data each calculator uses.
Some people prefer not to devote time for maintenance and fixes that home ownership requires. Other people may live on their own, and would prefer not to own a house until they are married or living with another person to share the responsibilities. Others need to continue to rent to improve their financial position so they may afford to purchase a home one day, according to experts at the Chicago Tribune.
A real estate purchase may be even more attractive as an investment, if you work with a competitive mortgage company in order to find a lower fee-based mortgage, combined with lower interest rate loans and buying the property at the right time. Most homeowners prefer to "pay themselves first," and earn equity or return on their investment, rather than let a landlord benefit from the income and appreciation of a rental investment.
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