Often, people look at a mortgage payment and a monthly rent payment and, if the two are even close, they assume that buying is the better deal. After all, if you rent, you’re just throwing your money away. Or are you?
While there are good reasons to buy and equally good reasons to rent, you should carefully consider the total costs of both before you make a decision to do either. Factor in things like the difference in renters insurance and homeowners insurance and the amount of time you will have to spend maintaining a home.
Consider this: If you rent an apartment or house, you have limited peripheral expenses. In most cases, the utility costs will be lower in an apartment. In some cases, utilities are even included in the rent. Before buying a home, find out what the average utility costs are in a given area. If you’re buying an older house, take a good look at the wiring and furnace. If either is old, they will either need to be updated, or you will need to shell out quite a bit extra for heat and appliance usage.
Factor in the costs of maintaining your home. What kinds of repairs are you likely to need? When you rent, if the roof or the sink leak, it’s the landlord’s responsibility. When the house belongs to you and the bank, it’s all on you. (Oddly enough, the bank doesn’t feel any unction to pitch in, though they own more of the house than you do for the first 15 years in most cases)
Standard maintenance costs include the equipment you will need to buy and operate to keep up your house and lawn, including a lawn mower, weed whacker, hoses, tools, and more. But perhaps the biggest expense is your time. Even if you are a handy guy who can do most of the maintenance yourself, it takes time. And your time has value. The average American’s time is worth something north of $17 an hour. At least that’s what our average wages tell us. How many hours per week will you spend doing chores that you wouldn’t have to do with an apartment? All of that has value.
So, if you really want to compare the value between buying and renting, do this: start with the mortgage payment and rent. Then add taxes to the mortgage payment. Then add the difference between insurance costs. Then add your maintenance costs (whether or not you factor in the value of your time is up to you). Finally, add the difference in utilities. What you’re left with is a truer picture as far as cost comparisons go.
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