August 16th, 2011
A recent article from CNNMoney reports that that it’s now cheaper to buy a two-bedroom home than to rent one in most major U.S. cities due to low mortgage rates and increased rental costs.
In “Buying is cheaper than renting in Most U.S. cities,” Les Christie presents data from real estate web site Trulia showing that buying was cheaper than renting in 74% of the country’s 50 largest cities in July. In 14% of cities the cost of buying was almost equivalent to the cost of renting, and renting was cheaper than buying in just 12% of cities.
In addition to low interest rates and high rent, Christie attributes the affordability of buying to decreasing property value and tax incentives.
As a result, Christie suggests buying over renting if you have a steady job, and if you have enough cash to put down with seven or eight months of expenses left over. If you’re buying a $200,000 home, 20% down is $40,000, plus closing costs.
Christie also says you should plan to stay for seven years or more – and you also have to be able to qualify for a mortgage, of course.
If you do qualify, though, the time you plan to stay might not really matter because you can hold onto the property and rent it out as investment. Since many people are forced to rent because they can’t afford or quality to buy, the demand for rentals will always be an incentive for investors.
You should also consider the cost of property taxes, insurance, heat, utilities and regular maintenance.
As Christie says, and we’ve said before,
“Ultimately, however, the decision whether to buy or rent depends on each person’s situation and their plans for the future.”