Buy That House: Renting versus Buying
When you do your grocery shopping, do you compare apples with oranges, tomatoes with ketchup, ground beef with steak, or so on and so on? Perhaps you do, but you recognize that there is a difference.
When you look for a place to live, is it appropriate to compare renting to buying? Yes, indeed, it is appropriate, but you must recognize the differences.
Let us assume that the average home sells for $350,000 in a certain area, which depending upon the means of purchase, could mean several different possible monthly payments, but for the sake of discussion, let us say that it is $2,500 per month in a monthly mortgage payment, which would include principal, interest, taxes, and insurance.
If in that same area the average rent is $1,000 per month, then is it appropriate to compare this to the average home which sells for about $350,000 with the $2500 per month mortgage payment?
Even when we consider the tax savings of buying a home and the possible appreciation, it is unlikely that the $1,500 difference between the average purchase versus the average rent will be overcome, but the question still remains. Is it appropriate to compare renting to buying? The answer is still yes, but we must consider the differences.
The average priced home of $350,000 quite likely has 3 to 4 bedrooms and 2 to 2.5 baths, is detached, has a yard, has a basement possibly finished, and a total living area of 1,500 to 2,000 square feet. The average rental at $1,000 per month quite likely has 2 bedrooms and 1 to 2 baths, is part of a rental complex, is located all on one floor, and has a total living area of 1,000 to 1,200 square feet.
When the differences of what we get for the average purchase versus the average rental are compared, it begins to seem absurd to compare the two. The average family with 2 to 3 children and a pet will find it very difficult to live in that average rental.
If the average home were to be rented, it is more likely that it would rent for close to $2,000 and not for $1,000. When tax savings and potential appreciation are considered, then the difference between the purchase with a payment of $2,500 and a rent with a payment of $2,000 will start to go in the favor of the purchase.
Certainly there are other factors to be considered when making a decision on where to live, but it is important that you make an informed decision.
Contact Ron Trzcinski at 410-935-5844 for more information.
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