Renting vs Buying

May 12, 2023

Matt has had a few people reach out to him about when would be the best time to buy with the current market. In particular, first-time homebuyers who are currently renting. The market obviously has a lot of uncertainties with the rates. And they were reaching out for information.

Risk Management

If you think of the risk management with any financial decision, you know you need to compare the risk vs the reward. When applying this concept to renting vs buying, people are taking into account the commitment of a purchase vs the commitment of a rental. You’ve got the 30 year fixed rate commitment hanging over for a purchase (refinancing might be an option to consider as well). But you’ve got a relatively short commitment with a rental. However, people also need to consider the financial decision of renting and the potential cost of lost equity in the NWA market.

(Obviously, not everyone is in the position to purchase a home, even if the rates were what they were a year ago. So I am really just speaking to those who can qualify for a mortgage. And those that the rates are the reason they are renting as opposed to buying.)

*To find out if you can qualify for a mortgage, you can speak with a lender for information and have a conversation. We know some good ones who would be happy to have that conversation with you about what it would look like.*

The Costs

I reached out with one of our local lenders and spoke with him about renting vs buying. We ran some numbers at the time of an average 3 bedroom house being sold at $278,000. Also with the intention of staying in the home for 2 years with a 3.5% down payment and 5.75% interest rate. Along with some other monthly assumptions of $1600/mo rent for a 3 bedroom, etc.

Buying becomes profitable in Year 2

Based on these numbers, at year 2, buying becomes profitable (by roughly $3,000) compared to renting. Obviously this is no guarantee as we are making assumptions. Housing prices have been going up and equity has been gained in our market.

There is associated risk with any financial decision you make, renting included. There is very little chance (I can’t say 0%

) that you will get ANY of your rent money back, but there is a pretty good chance (based on market data, I can’t say 100% sure

) that you will have a gain in equity. Risk vs Reward.

Some things to think about:

The NWA growth in equity also puts this $278,000 house closer to $300,000 to purchase in 2 years if waiting to purchase. (Based on the assumption of the annual appreciation used in our calculator)
Closing costs paid as a buyer can also be negotiated with the seller through your Realtor! So your out of pocket cost might be lower than what is in our calculator!

Make a Plan

Make a plan with Matt on your next purchase, make a timeline! Keep in contact with your lender and make a plan! There will always be a risk but you can get information. Try to make the best decision you can based on that information.

Below is the link for the calculator.