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V. Rent vs. Buy? Cost Over Time. At some point in your life, you will consider the BIG question: Should you buy or rent your home? There are plenty of non-financial reasons to do one or the other. For example, maybe you don’t want to be tied down to one location for more than a couple of years or deal with maintenance and upkeep. In those cases, renting may appeal to you. Maybe you’re sick of living in someone else’s house and want to own your own place and decorate to your taste without having to consult the owner about paint colors. Maybe you’re tired of dealing with a cranky landlord. Those are both good reasons to buy your own home. All other reasons aside and focusing solely the financial benefits, how can you decide between renting or buying? Basically, it comes down to comparing costs over time . Renting always starts out as the cheaper option since move-in costs (first month’s rent, plus a security and cleaning deposit) are invariably cheaper than a down payment. After a few years, however, renting often becomes the more expensive option. Housing costs vary around the nation, so exactly when on the rental timeline this happens also varies. There are are plenty of online rent vs. buy calculators to help you determine at what point renting becomes more expensive than buying, and which is the best financial option for you. Let’s explore: Reflect on Learning: At some point on the rental timeline, renting often becomes more expensive than buying a home. How is that possible? When would that happen? If you buy a home, how long do you need to own it before it becomes cheaper than renting the apartment? Use a rent vs. buy calculator, such as zillow.com/rent- vs-buy-calculator or michaelbluejay.com/house/rentvsbuy.html to determine when renting a home becomes more expensive than buying it. PRODUCT PREVIEW There are many different styles of homes. Deciding whether to buy or rent is one of the biggest financial decisions most people make in their lifetime. Most people have to borrow money to buy a home. A home loan is secured by a mortgage or deed of trust. Historically, homeownership has been one of the best ways to build wealth and financial security because of the ability to build equity through amortization and appreciation. Homeownership costs more upfront and there is also a risk that the value of a home can depreciate. Renting is cheaper upfront, but offers comparable wealth-building potential only if the renter invests an amount equal to a down payment plus what they save each month by renting. Renters should read their lease or rental agreement carefully before signing, make a detailed physical inspection of the property, and buy tenant insurance. A rent vs. buy calculator helps determine at what point in time renting becomes more expensive than buying. THE BIG PICTURE
THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY 163
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