Buy vs. Rent: Which Makes More Sense?


Across the country, apartment rental rates are falling and vacancies are rising, making renting an appealing alternative to buying. But there are a number of factors to consider besides costs.

Typically, the choice of renting versus buying is seen in financial terms, and tools like the Rent vs. Buy calculator can shed light on the financial tradeoffs. But unless the cost difference is extreme, the decision may hinge on issues that are harder to measure but no less important.

Renting is a short-term commitment, typically 12 months, sometimes only one. If the place proves unsatisfactory, you can move fairly soon.

Obviously, buying is a bigger commitment, perhaps a bigger commitment today than it was a few years ago, since home prices are not rising. It can easily take 10 or 15 percent appreciation to offset the various costs involved in buying and selling a property: title insurance, lawyer’s fees, mortgage application fees and points, realtor’s commission.

In good times, a home’s value will grow enough in three or four years to cover these costs, and home ownership does make financial sense over the long term. But today it might be smart to assume you won’t break even until you’ve had a home for seven, eight, even 10 years.

That could be a problem if you lose your job, want to move for a better one, or need to trade up because you get married or have children. For many people, the option of getting out quickly is, by itself, enough reason to choose renting over buying.

The short-term commitment of renting also means you can look at properties you might never consider buying. You might find a place that’s convenient to work but doesn’t have very good schools. For buyers, school quality matters, even if they don’t have children, because it affects property values. A renter without children can ignore this issue.

As a renter you can afford to be less concerned about the careworn property down the block, the local hotspot that’s a bit too noisy on Saturday nights or the disruptive construction project slated to start in a couple of years. For a buyer, all these might be deal killers.

Many cities have up-and-coming neighborhoods that are full of life and more affordable than the established areas. As a buyer, you’d have to worry that an improving neighborhood could hit a long dead period before it really turns the corner, sticking you with a less-than-desirable property. The renter doesn’t have to worry about that.

Because the commitment is short term, the renter also can afford to spend more to get the perfect place, knowing there’s an option of leaving if money gets tight. Because they can’t get out from under as easily, buyers should be more conservative.

The money issues certainly do matter. Before deciding which path to take, use the shopping tool to study mortgage rates, and plug the numbers into the Rent vs. Buy calculator. The average 30-year fixed-rate mortgage charges 5.48 percent, according to the survey, but there are lots of better deals. Wells Fargo (Stock Quote: WFC), for instance, charges 5.125 percent, and J.P.Morgan Chase (Stock Quote: JPM) has a 30-year deal for just 5 percent.

In using the calculator, note that several of the numbers you key in are no more than best guesses. You just don’t know what home-price appreciation will be, or the rate of return on money that could be invested if you rent and don’t need a down payment.

Renters enjoy lots of freedom that homeowners give up. In the end, that could be enough to tip the balance in favor or renting, for now if not forever.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at

Show Comments

Back to Top