Renting VS Owning, The Ratio

There are perks to both renting and buying a home. When you rent, you are not responsible for the upkeep, you are bound by a lease agreement that is usually either six months or one year in length, and you don’t have to worry about selling a home when you move. When you buy, you are making a worthwhile investment, you have the freedom to make changes to the structure, and best of all, the property will one day be yours. The question of whether to rent or buy is of particular relevance as home prices and interest rates continue to go down.

 

When you rent, you will be required to pay a deposit. If you choose to live in an apartment, this will most likely be a set fee that is less than your rent. If you lease a house or an apartment from an individual, you may be required to pay a deposit equal to the monthly rent. This will cover cleaning costs when you move out as well as be used to help take care of any damages that may have been caused during your occupancy.

 

When buying a home, you’ll need enough money to cover the various associated costs. These include: the down payment, closing costs, property taxes, mortgage interest, repairs, and other fees.

 

When making the decision of whether to rent or buy, it can be helpful to compare various aspects of the two. The easiest way to do this is to look at what is called the rent ratio. This is the purchase price of a home divided by the annual costs of renting one that is very similar. The number 20 is often used as a good indicator. A ratio above 20 means you may want to at the very least consider renting. This is especially true if you are likely to move within the next five years. Buying a house then selling it before that time period is up will most likely mean you won’t see any return on your investment, hence the reason for this. If the ratio falls below 20, you may definitely want to consider buying your own home. The lower it is, the more you’ll want to think about this option.

 

The average ratio in many metropolitan areas is now 16 or below. These areas include: New York, Dallas, Houston, Las Angeles, Chicago, Atlanta, and South Florida. This is a definite decrease from a ratio of above 25 in many of these areas around five years ago.

 

The decision to rent or buy is a hard one, but by using the ratio described above you may be able to put some perspective on the situation. It will help you when weighing all your options so the choice you make will be the right one.

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