Renting Vs Buying
“If you rent, you’re throwing away your money!”
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...Its just common logic that dictates buying is better. After all, you’re building equity, instead of wasting your money, right?
Of course many factors can and do play a factor in the result of this decision:
State of the economy
Age of property
But for curiosity’s sake, I did some research of my own, and ended up finding an excellent Internet based tool, (http://www.canadamortgage.com/calculators/rentvsown.cgi) to help shed some light on this age old issue:
This tool was really quick and easy to use, and it outlines the cost benefits of renting VS buying. For example:
Criteria I used:
o Purchase price -‐ $300,000
o Down payment -‐ $30,000
o Interest rate – 4.05%
o Term – 3yrs
o Amortization – 30yrs
o Maintenance costs – $200/month
o $1500/month The results were as follows:
o If you took the $300k down payment and the monthly rental
savings, and after a 36-‐month term, your before-‐tax investment
would be an estimated $45,000 (at savings rate of 5%/yr).
o For this option to perform as well as the rental option, the
appreciation per year on the property needs to be at least 2.37%. o Total appreciation of the property would need to be at least 7.3%
(with principal repayment, less 5% to market the home)
o If the value of the Purchased home increased by more than
$21,803 (7.3%) in 36 months, purchasing would be the better
financial option than renting.
• Note: All financial information and findings were generated by canadamortgage.com
As with any decision in life, it is always best to educate yourself on the issue at hand, and not follow just suit with traditional logic.
I wish you success on either endeavor, and please post if you have any questions.