Rent or Buy?
Excerpted from the new book, It’s More Than Money—It’s Your Life by Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFP®, CDFA.

A tremendous sense of pride comes with owning your own place, and owning a home has financial advantages as well. You can deduct the mortgage interest and property taxes on your income tax return, your house may appreciate in value, and when you sell your home you’ll likely realize that gain tax-free. Those are pretty great perks for investing in property.

Is It Better to Rent or Buy?

Step 1: Compare the costs

Monthly mortgage payment

Monthly property taxes

Monthly homeowner’s insurance

Homeowner association fees

Routine maintenance

Monthly ownership cost

Monthly Rent

Subtract rent from monthly ownership cost

Multiply by 12

Annual savings of renting instead of buying

Step 2: Compute lost earnings on down payment

Down payment

Times rate you could earn if invested elsewhere

x %

Annual lost earnings on down payment

Step 3: Compute income tax savings

Annual mortgage interest (multiply the balance of your mortgage by the interest rate)

Annual property taxes

Total interest and property taxes

Times your highest tax bracket

x %

Income taxes you will save by buying

Step 4: Compute Annual Appreciation

Value of the home

Annual appreciation percentage (can be negative)

x %

Expected annual increase in value

Option #1: Add bottom lines of Steps 1 and 2

Option #2: Add bottom lines of Steps 3 and 4

Which number is greater, option #1 or option #2?

• If it’s option #1, renting is better for you right now.
• If it’s option #2, buying is better for you right now.