# Rent vs. Buy Calculators – Surprising Results

### WHEN RENTING MIGHT MAKE SENSE

My young nephew pays \$4,250 per month to rent a property in San Francisco’s Marina District.

This is a bargain rate given the lifestyle that renting in one of America’s most desirable zip codes affords – short commute, stunning views, awesome nearby parks, perfect weather, best restaurants, etc.

His financial planner, however, tells him he is crazy to spend that much on rent and that he should buy a \$1.1 million home instead.

BUT, the problem is that it would cost my nephew close to \$2 million to buy a property similar to the one he is renting in the same area.

Even if he could scrape up \$400,000 for a down payment, his monthly payment would still be close to \$10,000 per month!

So, my poor nephew might have to move to the lowly East Bay if he wants to buy a lowly \$1.1 million home. 😊

He would, however, not only have to give up most of the amenities he now loves, but, worst of all for a millennial, he’d have to give up one the most Instagram-ready backdrops on the planet!

OK, facetiousness aside, the above situation (entirely true) is a great example of where “Rent vs. Buy” calculators don’t work.

But, they do work in most markets and they yield surprisingly positive results for potential buyers. This is particularly the case for our Texas clients.

### RENT VS. BUY CALCULATORS

Here are two calculators that we often recommend:

We love these calculators b/c they show how owning proves superior to renting in almost all cases.

This is the case with even with the most conservative of assumptions, e.g. 3% appreciation, a low combined income tax rate of 28% to 34%, and even an above market interest rate of 4% for FHA.

For example, according to Freddie Mac’s calculator, if a renter paying \$1,800 per month buys a \$500,000 home with 3.5% down, FHA financing, she would “save” over \$65,000 after seven years.

With a full 20% down, the renter in the above scenario will “save” almost twice as much after 7 years.

The combination of very low rates and likely continued appreciation (especially with the coming “housing boom” that I blogged about last week) make buying a much better option than most renters realize.

And that is why we recommend sharing these calculators.

I might finally add that these calculators only focus on the “financial benefits.”

They do not of course account for the psychological benefits of owning, e.g. pride of ownership, remodeling to one’s own tastes, and being able to pound nails in the walls. 😊

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167