There is a really good blog post over at financial follies regarding the merits of buying versus renting a house. As far as I can tell, the blog has been inactive for quite some months now, but the post remains as evergreen.
For a lot of people buying a house remains to be the biggest investment decision they will make in their lifetimes. At current median house prices in most major cities, you would be hard pressed to find anything much, for less than $400,000. Renting might set you back $2000 a month and that is a conservative figure. So if you compare the two and factor in opportunity costs, which one do you think will fair better? Well… if only it was that simple, there are a lot of other factors that need to be considered as well. If you are buying, there are purchasing costs, land tax, utility rates, maintenance, stamp duty, lost rent from vacancies, rental insurance, mortgage fees if you are going to borrow and property management fees if you are going to rent it out and on and on it goes. If you were to rent, all you really need to factor in is the rent you pay.
Now, the opportunity cost is simply the relatively risk free return you would get had you deposited your money into a government backed deposit account. Trying to factor in all those variables by writing up your own spreadsheet can be quite a tedious task, but thanks to this nifty little tool provided by the New York Times it’s all done for you.
Since the author of financial follies has already written such a great post about this tool, I can only suggest that you follow his article and then do some plugging of your own numbers to see whether you should buy or rent.