November 6, 2007
Anatomy of a Rent or Buy Decision
Now that it’s clearly a buyer’s market, it seems like a good time to review the basics of a rent versus buy decision. So, I’ve found virtually two identical properties, separated only by a few neighbors to make this comparison on a 2 bedroom, 2.5 bath, 1,830 sq.ft. townhouse in the Rosehill area of Redmond.
| RENT 8847 132nd Pl. NE Redmond |
BUY $539,950 8835 132nd Pl. NE Redmond |
|
| Deposit/Downpayment (20%) | $850 deposit $35 application fee |
$107,990 |
| TOTAL UP FRONT COSTS | $885 | $107,990 |
| Rent/mortgage payment (6%) | $1700 | $2,589 |
| Homeowners association fee | $0 | $11 |
| Home owner/renters insurance | $25 | $126 |
| Property tax | $0 | $245 |
| TOTAL MONTHLY COSTS | $1,725 | $2,971 |
These are the basic cash outflows associated with either decision, and although they do not comprise a comprehensive list, they do provide enough basic information to give you some idea of the total cash outlays involved in either case.
Some additional factors to take into consideration:
- If you purchase the property, there is the lost investment income of about $450 per month on the 20% downpayment, based on a 5% interest rate.
- Depending upon your income tax bracket, you also need to adjust monthly costs of owning by the amount of tax savings you are able to obtain from deducting your mortgage interest.
- If you own the property, you should also take into account some amount of appreciation of the property over time, depending upon how long you plan on keeping it, etc.
- Have I forgotten anything??
The above costs are estimates and may vary. They are provided for use as a basic model only.
