Buy vs Rent case studies over three price ranges. The math behind the recommendation.

We have all heard the recommendations – “Buying is better then renting!… Blah Blah Blah…” Well, I actually did the math, and it IS better then renting. My analytical people, my perfectionists, let me build my case.
I am VERY cautious with money, especially my client’s money. So in my example, I am using ‘worst case scenario.’ I am overestimating everything. I like to under promise and over deliver, because if there are any unforeseen expenses, I want you to be prepared.
For ease of math and demonstration, lets assume:
- 30 year fixed rate conventional (20% down) mortgage
- mortgage interest rate is 4.5%. This is high my friends. On the day of this writing, we are experiencing the highest rate of 4.38% (over the last 12 months)
- mortgage payment consists of principal & interest, property taxes and home insurance
- rent estimate is for a comparable home in the same neighborhood (per rented-out comps in MLS)
- no extra expenses like utilities or others are considered
- We will also assume the market stays flat; meaning there is NO increase in value at selling time in 5 years.
- we will include an additional estimate for an annual 3% home price increase/year to stand in line with inflation
So… If the market stays flat – no growth and the purchase price IS the selling price five years down the line, it is not pretty to look at, but a buyer would have at least *some* money that is coming back at the time of the sale. Spent rent money is just that – spent and gone…
It is reasonable to assume that if the housing market DOES go up at least 3% a year, we see a full return of initial down payment and closing cost investment and then some extra cash a homeowner can walk away with.
Buy and Sell after 5 years vs. Rent for 5 years
$100,000 Parma OH 44134
Annual Taxes: $2300
Home Insurance: $750
3 bedroom,
1 full bathroom
1,000 square feet (additional 900 below ground, partially finished)
Misc: 2 car garage, full exterior waterproof, huge kitchen and very large bedrooms. Updated electrical, newer windows. Garden-like yard.
$130,000 Parma OH 44134
Annual Taxes: $2461
Home Insurance: $750
3 bedroom,
2 full bathrooms
1,379 square feet (additional 900 below ground, partially finished)
Misc: 2 car garage, full exterior waterproof, huge kitchen and very large bedrooms. Updated electrical, newer windows. Garden-like yard.
$170,000 Brunswick OH 44212
Annual Taxes: $2461
Home Insurance: $750
3-4 bedroom,
2 full bathrooms
1,800 square feet (additional 400 below ground, partially finished)
Misc: turn-key, but may need a few minor updates. High-er ceilings if split level; nice bedrooms, possibly master bath. Nice yard.
$200,000 Highland Heights OH 44143
Annual Taxes: $6000
Home Insurance: $850
3 bedroom,
2 full bathrooms, 1 half
1,800 square feet (possible basement)
Misc: 2 car garage, turn-key condition, updated throughout. Large room, master with a small master bath.
$250,000 Pepper Pike OH 44124
Annual Taxes: $8,000
Home Insurance: $850
4 bedroom,
2.5-3 full bathrooms
2,400 square feet (possibly basement)
Misc: 2 car garage, high ceilings, good sized room; master with master bath, hardwood throughout, modern and beautiful.
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