How to Find Out if It's Cheaper to Rent or Buy a Home

by Garrett W Burdick 01/06/2020

With rent prices soaring in many areas of the U.S., renters are starting to consider whether now is the right time to start saving for a down payment on a home.

Depending on where you live and what your timeline is for buying a house, you might be wondering the same thing.

So, in today’s post, we’re going to talk about how to break down your rental costs to determine whether it makes more sense to buy a home rather than continue renting.

Add up your rental costs

There are any number of costs associated with renting depending on your lease agreement. Some renters are required to pay their own heating and utilities, while others have several bonuses thrown into the cost of their rent, such as internet, gym memberships and more.

So, take a minute to write down each of your rental expenses. To get you started, here’s a list of some of the most common costs for renters:

  • Monthly rent

  • Electric bills

  • Heating bills

  • Trash removal

  • Renter’s insurance

  • Parking fees

Now that you know how much you put toward renting each month, it’s time to take a look at what it could cost you to own a home.

Homeowner expenses

The key thing to remember about buying a home is that your costs can vary widely based on the size of your home, where it’s located, and a number of other factors. However, you can often find area averages online.

If you’re considering a starter home (which you should!), then you’ll want to look at houses in your area that are on the lower end of the market.

To get an idea of what your mortgage payments and monthly interest will be, you can use a free tool like Bankrate.

Now, let’s make a list of your homeowner expenses:

  • Mortgage payment

  • Home insurance

  • Trash removal

  • Utilities

  • Heating and AC costs (plan for higher costs than renting due to more space)

  • Electricity

  • Property taxes (divided by 12)

  • Mortgage insurance (if you don’t have a 20% down payment saved)

Cost-benefit analysis of owning a home vs renting

Now that you know the general costs, you’re getting close to knowing whether it would be cheaper or more expensive to buy a home than rent.

However, that isn’t the full picture. When you own a home, you’re responsible for maintenance and upkeep. That means you should budget around $250 per month toward maintenance. Even if you don’t use that amount each month, there’s a good chance you’ll have to make a repair or upgrade, or even hire a professional to come and fix something on your home.

The final piece of the picture involves home equity. When you own a home, most of the money you pay each month to your lender will come back to you in the form of equity. As a renter, your money goes to your landlord and will never be seen or heard from again.

So, if you’ve added up your lists, accounted for maintenance costs, and still have enough left over to live comfortably each month by buying a home, you can most likely bet on buying as being a better option.

If not, it might pay off to rent for another year or two while you save up for a down payment so you can get the lowest interest rate and avoid PMI.

About the Author
Author

Garrett W Burdick

Garrett Burdick is a Real Estate Professional and has demonstrated repeated success as an entrepreneur whose innovation, proficiency, and out-of-the-box thinking have all earned him the reputation as a seasoned strategist across multiple industries. Over the course of a decade, he has cultivated extensive knowledge in real estate. Garrett, a licensed Real Estate Agent has joined a prominent brokerage Vanguard Properties in Marin County to offer real estate services for sellers and buyers. With several years as a Real Estate Professional he is equipped with local marketplace familiarity and renovation expertise. Ultimately, Garrett is on a mission to offer a top-tier, seamless, and stress-free transaction to each and every client, and serve as their trusted ally during one of the largest investments they will ever make in their lifetime.

Outside of his career, Garrett is an avid professional photographer who owns Birdman Inc Locations Services and Buzz Photo Booths. He even has a culinary background as a Culinary Institute of America graduate. Above all, he cherishes spending quality time with his loved ones in San Rafael. He is happily married to his wife Tanya, and they are the proud parents of two amazing San Rafael High School boys, Walker and Cooper. Whether you’re seeking a new home or are a homeowner interested in selling your property, Garrett is here to help you turn your goal into a reality. Feel free to reach out to him at any time with your inquiries and he will be more than happy to answer your questions.