subject: Should I buy or rent? A simple calculation [print this page] Should I buy or rent? A simple calculation
Well, I searched almost everywhere to try to find a simple calculation to help people make the hefty decision of whether to buy or rent a home. Wow, I can say that there really are a large array of calculations available. I came across several different types, some much more user friendly than others. Sifting through all of them was somewhat painful and tedious. I can certainly understand why someone struggling with making the decision of buying or renting would feel overwhelmed trying to look for that perfect calculation that will give them the final answer they are desperately looking for. Finally, I decided on a calculation developed by Dean Baker, co-director for the Center for Economic and Policy Research. Here you go, the calculation and why I liked it!
Calculation:
Take the selling price of a home, divide it by the cost of renting a similar home in a comparable neighborhood for an entire year.
If the result is a number higher than 20, renting is the most profitable option.
If the result is a number lower than 20, buying would be the most profitable option.
Why I liked this calculation:
The main reason I liked this calculation is because it takes into consideration the predication of the value of the home in the future. Of course, I'm still considering that buying a home is supposed to be an investment for the home buyer. And investment implies a profit in the end. Therefore, we would be largely concerned with what the value of the home for purchase is accurately predicted to do in the future. The best homes available to people seeking to purchase their own property are the ones that can provide some equity or those that will not depreciate in value over the coming years. The bottom line is if the value of the house available for purchase is likely to fall in the future, then home buyers should really consider renting instead of buying. If the value of the home is going to drop, it would not be a wise investment to get involved in. Hope this helps!
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