HOUSING: PURCHASE OR RENTAL?

There are many reasons people decide to purchase a home. However, financially speaking, now may or may not be the right time to buy. The way for a specific individual to tell if now is the right time financially to purchase a property is to compare the after-tax costs of home ownership with the costs of renting.

Contrary to popular belief, it is not always best to own over renting. Fluctuations in housing markets, substantial down payments, higher standard tax deductions, home maintenance costs, and moving flexibility can favor renting. Alternatively, asset building, fixed-rate mortgages, and greater privacy tip the scales toward home ownership.

The formula below can be used to determine whether or not it is cheaper to rent or to buy at the current time.

Formula:

After-tax home cost = [(mortgage interest + real estate taxes) x the taxpayer's federal and state tax rates added together] - maintenance costs and other home expenditures.
Take the results of this formula and compare these figures to the actual costs of renting. After a cost analysis has been made, bear in mind that there are still other factors to consider. These include how long it will be necessary and/or desirable to stay in the home, how intimidating maintenance and repairs will be, and whether or not funds are currently available for a down-payment.



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