Rent vs. Buy Calculator

I just did one of those rent vs. buy calculators on Wells Fargo's website, and my results showed that it would cost me almost 18000.00 LESS to rent over the next 5 years....Can this be right?

The only thing to think about is you don't own anything. Of course if your rent is cheap it's going to be less than buying.

I've done that calculator before although I can't remember exactly what the numbers are.

---

Posted by soontobemrsd325

I just did one of those rent vs. buy calculators on Wells Fargo's website, and my results showed that it would cost me almost 18000.00 LESS to rent over the next 5 years....Can this be right?

---

Yes... definitely. People seem to think that 'oh its so bad to rent'.

It really isn't.

Honestly, there is no right answer to this but most financial advisors would say no, it pays to own if you are planning on living in the residence for 5 years.

Keep in mind a few things:

1. You will be getting a tax deduction on the interest you pay on your mortgage. The majority of your first few years payments are interest on the principle. We get a tax deduction of several thousand dollars a year because we own.

2. You are building equity... yes, the market will probably level off and yes, many people who overextended themselves will foreclose but the prices are not going to decline substantially across the board. We are an island with only a finite amount of land and a lot of job opportunities and a higher standard of living. While many twenty-somethings are moving off, there are people from other areas who are moving to LI and population will continue to boom. While the value of your home may not increase as dramatically over the next few years, as it did over the previous few years, you will own it. If you decided to sell you should get back at least your initial investment. Very rarely does real estate decline in value.

3. Rent... you can rent for 30 years and at the end you will own nothing (think of those people who bought for $80,000 and are now selling for $500,000) and not gain the tax benefits associated with a mortgage.

That all being said, it is a personal decision and does depend upon several financial and lifestyle issues but the overwhelming percentage of the time it does pay to own.

Yes, the calculator is helpful but it doesn't consider the other factors. You might 'save' over $18,000 but if you invested that with interest rates and the stock market the way it is today you will not see a greater return on your money than real estate.

---

Posted by David'sbride

Honestly, there is no right answer to this but most financial advisors would say no, it pays to own if you are planning on living in the residence for 5 years.

Keep in mind a few things:

1. You will be getting a tax deduction on the interest you pay on your mortgage. The majority of your first few years payments are interest on the principle. We get a tax deduction of several thousand dollars a year because we own.

2. You are building equity... yes, the market will probably level off and yes, many people who overextended themselves will foreclose but the prices are not going to decline substantially across the board. We are an island with only a finite amount of land and a lot of job opportunities and a higher standard of living. While many twenty-somethings are moving off, there are people from other areas who are moving to LI and population will continue to boom. While the value of your home may not increase as dramatically over the next few years, as it did over the previous few years, you will own it. If you decided to sell you should get back at least your initial investment. Very rarely does real estate decline in value.

3. Rent... you can rent for 30 years and at the end you will own nothing (think of those people who bought for $80,000 and are now selling for $500,000) and not gain the tax benefits associated with a mortgage.

That all being said, it is a personal decision and does depend upon several financial and lifestyle issues but the overwhelming percentage of the time it does pay to own.

Yes, the calculator is helpful but it doesn't consider the other factors. You might 'save' over $18,000 but if you invested that with interest rates and the stock market the way it is today you will not see a greater return on your money than real estate.

---

I couldn't agree more on all counts.

.......yes, the market will probably level off and yes, many people who overextended themselves will foreclose but the prices are not going to decline substantially across the board. We are an island with only a finite amount of land and a lot of job opportunities and a higher standard of living. While many twenty-somethings are moving off, there are people from other areas who are moving to LI and population will continue to boom. While the value of your home may not increase as dramatically over the next few years, as it did over the previous few years, you will own it. If you decided to sell you should get back at least your initial investment. Very rarely does real estate decline in value.

I have a big problem with this statement! It sounds like you are so sure! How could you be so sure about everything you just stated? As I see it nothing is for certain in this world, especially now.

Rent... you can rent for 30 years and at the end you will own nothing (think of those people who bought for $80,000 and are now selling for $500,000) and not gain the tax benefits associated with a mortgage.


While its true you can rent all of your life and in the end not own nothing (although thats ok with some people) the last part of the statement Im not to sure about, sounds so good but...

'People who bought for 80K now are selling for 500K'

Yeah but so what? everything around them costs that or more! so all they can afford to buy now once this 80K home is sold is another home probably the same size as what they just sold and pay cash for it , they will now have a mortgage that goes with that new 500K home not the mortgage they once had for the 80K home. And if they want to upgrade homes then they have to prepare to shell out some serious money because their mortgage will now go sky high.

The only way it pays is if you buy at 80K and sell for 500K and then move to an area that will allow you to buy a home cash and save the rest in the bank or something. So in essence you have to sell at 500K and move to Nebraska or Illinois or somwhere like that and buy a beautiful home for 200K -250K.

Otherwise just stay in your home and dont sell.

Building equity is important though.:)

I agree with that! But you do have to be very saavy and know investments etc.

If you put into account all the work a home needs, extra electricity, water, gas, heating, roof replacing, getting a new kitchen, new bathroom, painting the house interior and exterior, new windows, new garage, new doors, home insurance etc, etc thru the years and add to that the interest youve paid on the home and then do the math, it could very well be that you havent made that much in the end.

Could be that someone who doesnt buy and rents and doesnt have to pay interest and buy home insurance and spend all of this money in their lifetime to maintan a home and instead intelligently saves and or invests their money wisely, could end up having the same or even maybe more than the homeowner.

Then if you stop in think it could be that in the end after the kids are gone you probably will retire and move to an apartment anyway because you cant handle the keeping of a home anyway, then whats the point?

Some one before said that they bought because they'd like to be in control of where they will live and not depend on someone else. But the truth is when you rent you do have control, first of all the landlord cant just legally kick you out from one day to the next, never mind rent control building and second you certainly have control where you live its called breaking or not renewing a lease.

Anyway just food for thought. Again in the end you have to do whats best. Some really want to own a home its their life's dream and there isnt anything wrong with that.

I don't know about making profit off a house in the short-term like a few years (however the past 5 years proved to be profitable to many people, but I'm not counting on an increase in such a short time happening like that again), but I think it can't hurt if you plan on staying at your house for a long time. I hope that when I get a house, I will be there for a very long time. It's not so much for the value or what the potential value can be, but for the security of owning a house.

I really dislike renting. Why should I pay off someone else's mortgage? The house I stay in, is me and another tenant because it's a 2-family, and the landlord lives somewhere else. I bet my rent alone pays off the mortgage because the house was bought around 2000, and prices were half then what they are now. It just pisses me off to no end. I want my own investment.

---

Posted by violet

I really dislike renting. Why should I pay off someone else's mortgage? The house I stay in, is me and another tenant because it's a 2-family, and the landlord lives somewhere else. I bet my rent alone pays off the mortgage because the house was bought around 2000, and prices were half then what they are now. It just pisses me off to no end. I want my own investment.

---

You are not paying off someone else's mortgage. You are paying for a PLACE TO LIVE.

Too many people look at the 'paying off someone else's mortgage' or 'not getting anything back' aspect of it and will buy when they shouldn't.

You ARE getting something back when you rent.... a place to live which is quite important!

And if your rent alone pays off his mortgage... well good for him. But that shouldn't be your concern either. Just because he made a GOOD decision back in 2000... doesn't mean you should make a BAD decision now.

Just my two cents.

I just went to that calculator and I would be saving 19,500K if I continued renting.

:)

---

Posted by violet

I pay for a place to live, but rent is too overpriced. I'm throwing away $15,000 a year without seeing a dime of it back. So I would rather invest my money into a house that I myself own. If I was paying under $1000 for rent, maybe I would feel differently, but rent costs us a lot.

---

You think Rent is overpriced? Go figure out what your monthly payments will be on a 350k mortgage.

And you can say 'well you get something back'.... well for those first 5-10 years... compare how much of that you 'paid out' is actual principal. Not a lot.

I'll give you a good example.... Back in 2001 when I bought my 1br co-op. I bought at 69k.

My mortgage payment was $570 a month (8% interest)... and my maintenance was $330. So thats about $900 a month.

Back then.... rentals in NICE areas were well over $1000 a month.

So yeah... back then... definitely better to buy.


But now is a different time. Prices for housing is WAY overpriced. WAY WAY WAY overpriced!

The only reason why I am even CONSIDERING a house right now is because my wife really wants a house and I already have enough equity in my co-op that I can put down 20% on a house.

But I am still paying WAY more for a mortgage plus RE taxes compared to what a rental goes for.

I know a mortgage will be more money, but I don't see it as throwing money away.

And I am moving to Suffolk, away from Queens, where houses are more affordable for me. I'm getting a house I can see staying in for a long time, not a starter house. In Queens, I would have to get a really small, scary looking house for 400k.

Also, don't assume that the market will just bust and decline drastically. I read articles, and that's not a given.

---

Posted by violet

I know a mortgage will be more money, but I don't see it as throwing money away.

---

Its not throwing money away if you can AFFORD the mortgage. If you get a mortgage... and forclose on it in 2-3 years... you will be throwing WAY MORE away.

ya know what i mean?


Its a personal decision based on one's personal finances.

A Good Read


Here is a quote

---

But at least you didn't throw money away renting, right?

Let's assume you manage to scrape together $60,000 for a down payment and finance with a low interest rate – 4.6 percent for a 5-year ARM since you aren't sure you'll stick around very long.

During your first year you'll pay $10,960 in interest and only $3,800 toward principal. What you do stash away as principal will likely be eaten up by property taxes, which range from 1 percent to 3 percent of the price of the home, depending on where you live. (See 'Big city taxes.')

Add to that homeowners dues and maintenance costs and you very well may 'throw away' more money owning than renting.

It's true that you'll get some tax breaks on the mortgage interest. Assuming you itemize your deductions and are in the 25 percent tax bracket, the $10,960 you pay in interest may work out to a $2,740 deduction from your federal income taxes.

Then again, if you rent you can always take the standard deduction, $4,850 for singles and $9,700 for married couples filing jointly in 2004.

---

I really think it comes down to whether or not you want to own. My mortgage was twice that of my rent when we bought. The appreciation alone made up for the increase. My tax refunds are larger.

I look at our home as the bank of us. We are diversified in our investments and the place we live provides us with a place to live that we can call our own and doubles as a good investment. Frankly, I never thought it would appreciate as much as it did, but glad it has. I would probably buy today, if I could afford it even with the possibility that the houses will not have the same appreciation as in the past 10 years.

I still think owning real estate is an excellent way to spend your money.

If you're happy you are renting, great. Your choice and be happy with your choice. Don't let anyone pressure you to do something you don't want to.