Buy vs Rent case studies over three price ranges. The math behind the recommendation.

We have all heard the recommendations – “Buying is better then renting!… Blah Blah Blah…” Well, I actually did the math, and it IS better then renting. My analytical people, my perfectionists, let me build my case.

I am VERY cautious with money, especially my client’s money. So in my example, I am using ‘worst case scenario.’ I am overestimating everything. I like to under promise and over deliver, because if there are any unforeseen expenses, I want you to be prepared.

For ease of math and demonstration, lets assume:

• 30 year fixed rate conventional (20% down) mortgage
• Mortgage interest rate is 4.5%. This is high my friends. On the day of this writing, we are experiencing the highest rate of 4.38% (over the last 12 months)
• Mortgage payment consists of principal & interest, property taxes and home insurance
• Rent estimate is for a comparable home in the same neighborhood (per rented-out comps in MLS)
• No extra expenses like utilities or others are considered
• We will also assume the market stays flat; Meaning there is NO increase in value at selling time in 5 years.
• We will include an additional estimate for an annual 3% home price increase/year to stand in line with inflation

So… If the market stays flat – no growth and the purchase price IS the selling price five years down the line, it is not pretty to look at, but a buyer would have at least *some* money that is coming back at the time of the sale. Spent rent money is just that – spent and gone…

It is reasonable to assume that if the housing market DOES go up at least 3% a year, we see a full return of initial down payment and closing cost investment and then some extra cash a homeowner can walk away with.

Buy and Sell after 5 years vs. Rent for 5 years

Case Study #1

• Location: Parma, OH 44134
• Rooms: 3 bedroom, 1 full bathroom
• Details: 1,000 square feet (additional 900 below ground, partially finished)
• Price: $100,000
• Annual Taxes: $2,300
• Home Insurance: $750
• Additional Details: 2 car garage, full exterior waterproof, huge kitchen and very large bedrooms. Updated electrical, newer windows. Garden-like yard.

Case Study #2

• Location: Parma, OH 44134
• Rooms: 3 bedroom, 2 full bathroom
• Details: 1,379 square feet (additional 900 below ground, partially finished)
• Price: $130,000
• Annual Taxes: $2,461
• Home Insurance: $750
• Additional Details: 2 car garage, full exterior waterproof, huge kitchen and very large bedrooms. Updated electrical, newer windows. Garden-like yard.

Case Study #3

• Location: Brunswick, OH 44212
• Rooms: 3-4 bedroom, 2 full bathroom
• Details: 1,800 square feet (additional 400 below ground, partially finished)
• Price: $170,000
• Annual Taxes: $2,461
• Home Insurance: $750
• Additional Details: Turn-key, but may need a few minor updates. Higher ceilings if split level; nice bedrooms, possibly master bath. Nice yard.

Case Study #4

• Location: Highland Heights, OH 44143
• Rooms: 3 bedroom, 2 full bathrooms, 1 half
• Details: 1,800 square feet (possible basement)
• Price: $200,000
• Annual Taxes: $6,000
• Home Insurance: $850
• Additional Details: 2 car garage, turn-key condition, updated throughout. Large room, master with a small master bath.

Case Study #5

• Location: Pepper Pike, OH 44124
• Rooms: 4 bedroom, 2.5-3 full bathroom
• Details: 2,400 square feet (possibly basement)
• Price: $100,000
• Annual Taxes: $8,000
• Home Insurance: $850
• Additional Details: 2 car garage, high ceilings, good sized room; master with master bath, hardwood throughout, modern and beautiful.