There has been a lot of ink spent on trying to answer this most basic of questions. In the FIRE community, there are strong voices advocated each choice, and there are a lot of bloggers, even though their analysis shows that renting for them is optimal who choose to get a house anyway.
It is a decision that is based on numerous variables, each of which has to be determined for a market that is dramatically fractured. In my state of New Jersey, the price for the town next to mine is ½ to 1/3 the price of my own town. This is primarily due to the school system and the perceived value of that town.
Some of the monetary variables that need to be considered include:
- Home value
- Mortgage rate
- Down payment
- Property taxes
- Repair costs
- Condo fees
- Decorating/remodel costs
- Increases in home value
- Increases in rent rates
- Home insurance costs vs rental insurance costs
In addition, there are numerous non-monetary factors that impact this:
- Neighborhood/School system – major factor with families
- Closeness to other family
- Not selling/owning home vs. continuing to rent into your retirement (i.e. if you purchase a home, its yours after 15/30 years, but if you rent, you are still renting at the age of 65)
- Flexibility/ease to move (hard to move quickly while having to sell a home)
- Ease of finding rental (in some markets, like Colorado, it’s almost impossible to find a rental. Home prices have shot up so much that it has forced out rental opportunities)
- Rental increases in excess of model (you don’t have control of this, unlike a locked in mortgage rate – the owner could jump your rates 10% and you are out of luck)
I would say these intangible factors are what causes a lot of the FIRE bloggers who have done the math to buy a home anyway, even if the numbers say it doesn’t make sense.
- Our Next Life (about 1/3 down the page they talk about it)
In the end, the answer is – it depends. There are too many variables and too much personal preference involved in the decision. Everyone has to do the math for their specific situation, take into account the non-monetary factors, and then decide.
To help, here are some “make vs. buy” tools available for free on the internet.
NerdWallet: 4 years
Realtor.com: 9 years
NY Time: 9 Years
Zillow.com: 2 years
Smartasset.com: Depends on what you put in
I think NerdWallet and Zillow leave out a few things that need to be considered (Zillow has a hidden agenda to get you to buy a home). Realtor and NY times include a lot more items to be considered (maintenance of home, Condo fees, etc.). I like smart asset, because it lets you input a lot more of the data yourself (mortgage rate, repair costs, etc.) so you can match it easier to your current situation.
Other blogs to review:
Rockstar Finance: Pay off mortgage vs. Invest extra
Any thoughts on make vs buy for you?
Mr. 39 Months