Buy or Rent?
Owning your own home may be part of the American dream, but in some instances it makes more sense to rent. Yes, your monthly rent check is a recurring cost you'll never get back. But owning a home involves a lot more than just paying your mortgage.What's best for you? Here are some guidelines.
|Does It Make More Sense to Rent or Buy?|
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For an easy way to compare the costs, find the rent ratio by dividing the sale price of a home by the estimated annual rent. A high rent ratio (above 20, generally speaking) means the cost of ownership exceeds the cost of renting.
- Example: If a $250,000 home rents for $1,000/month, the ratio would be $250,000/$12,000 for a rent ratio of 20.8. In this case, it's probably more cost-effective to rent.
If the same home rents for $1,500/month, the ratio goes down to 13.8, and buying becomes more attractive.