Rent or Own?the Fallacy Behind Conventional Rent vs. Own Calculators



Posted: Wednesday, February 18, 2009

by Marci McFarland
http://www.marcimcfarland.com

The New York Times has a rent vs. buy calculator that is easy to use and deceptively simple to understand.  It tells me that, in some cases, it is never a better investment to buy for $1000 a month when I can rent for $750.  On the surface, that may be true.  $1000 a month, plus whatever I put forth as a down payment is definitely more than $750 a month.  Or is it?

Many rent vs. buy calculators assume that you know things that most financial analysts are hard put to predict: the amount that your home will appreciate, the likely amount of taxes on your property, etc.  In order to get a somewhat accurate result, you have to know your property tax rates, approximate closing costs and tax return deductions for the property you are considering.  If you don't know these things, you can have fun with the calculator, but it isn't going to give you an accurate idea of the true cost of buying a home.

Face it, most of these products are on sites that are trying to sell you a home or a mortgage or something else closely associated with home ownership.  While home ownership is one of the best things you can do to improve your overall portfolio and investments, these benefits will not materialize if you do not know when, where and how to buy.  A calculator can only give you the barest notion of the costs associated with home ownership.

This sounds really down, but it's not meant to put you off of buying a home.  If you end up finding out all of the information that a detailed rent vs. buy calculator asks for, you will be closer to knowing the costs associated with owning a home than by using the calculator.  Actual research counts for a great deal when it comes to the ever-changing costs of real estate. 

A good real estate agent can help you figure out how much home you can afford and where to find the right home for you.  If you're seriously considering home ownership, a professional can help you find out what your purchasing power is and how to get the most home for your money.  The pro can also tell you about the incidental expenses in purchasing a home that you might not be taking into account.

Rent vs. buy calculators can be fun toys when you're in the process of figuring out if you're ready for home ownership and how much home you can afford, but they aren't something you should put your faith in.  No matter what the calculator says, you are going to get a better idea by consulting with a reputable real estate professional.

Marci McFarland is a Sarasota real estate agent with a broad professional approach. Her unique insight into the various lifestyle requirements of her clients, combined with an intimate knowledge of her service area including Lakewood Ranch Sarasota real estate, make her an ideal choice for families and investors alike.

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