Step 4: Should you rent or buy your home?

You should make sure that your rental unit is equivalent to the home that you would like to buy. Do not try to compare a 2 bedroom condo to a 3 bedroom cape.

When buying a home you have an ASSET and it is building up EQUITY. When renting a home, you have nothing but an EXPENSE building up NO EQUITY.

Buying can be less expensive than renting because your mortgage payment is generally fixed for the number of years that you take it out, but of course your real estate taxes will increase each and every year. Your rent payment will probably go up each and every year to keep up with inflation.

Study the illustration carefully so that you can input your own numbers and create different scenarios for yourself. Also look at the definitions.

View the report. Take a look at the investment column. The investment value is the amount you would receive if you invested your closing costs and down payment instead of purchasing the home. In this case the closing costs and down payment totaled $10,000 and is invested at a rate of 7%. You will notice that the rent payment is more than the house payment. The difference between the two is subtracted from the amount of $10,000 invested at 7% to come up with a beginning balance of $8,620. The investment column keeps dwindling each year because the rent payment keeps increasing due to the the rate of inflation and at the end of 30 years, your beginning investment of $8,620 is now down to
-$541,220.

The Home Equity column represents home appreciation at the annual rate of 3% plus the amount of principal being paid off each year. After the mortgage has been paid off at the end of 30 years coupled with the annual rate of appreciation, the market value of the home at the end of the 30 year period is $225,735. Looks like buying beats renting by an amount of $766,955 according to this particular illustration.