Should you buy a home or keep renting? This is a question most of us will likely face in our lives, whether buying a house makes more financial sense than renting a home. There is a way to understand the financial impact of buying vs renting. Generally speaking you should consider the following,
Our buy vs rent calculator may seem quite complicated, but we will help you calculate the total cost of buying a home versus the cost of renting over time with your money.
For buying, the total costs compare the total amount of money you would be spending over time, minus the potential value you might receive if you someday sell the property. To get more personal options, you can crunch more specific numbers and evaluate more specific scenarios. However, keep in mind that a financial comparison is just one of many factors whether to rent or buy.
If you buy a home, you will need to provide a downpayment and then monthly payments that include the mortgage, the tax, insurance, maintenance and other possible cost such as HOA fee. That most likely mean you will need to draw more money out of your pocket. However, at the end, when you sell the house, you will get money back. On the other hand, when you renting, you will only need to pay the monthly rent. That means you will have more money in your bank account. To make the comparation meaningful, the calculator assume that you will invest that money with a predefined investment return rate. This is like to put the difference of cash flows from the buy to rent into an investment portfolio. At the end we only need to compare the investment portfolio value with the house net proceeds if sold because the inflow of the cash is the same.
There are many factors that will impact the return of an investment portfolio, so by using a fixed return rate will most likely result some kinds of accurancy issue. However, the calcualtor still will give you a general idea of which one is better along the time line. Normally, renting is better for a short period of time because the closing cost of a home purchase is significnat and will need you to stay at that home for a period of time to offset that cost. Therefore, the calculator will calculate a break point in years. Before that point, renting will have advantage. On or after that point, buying will win. This break point will help you to make the decision of if you should buy or rent based on you expectation of the duration you will stay at that home.