The decision whether to buy or rent is of interest to consumers, investors and other professionals in the real estate market. Most individuals at some point in their lives have or will encounter the decision of whether they should continue renting or instead buy a home. Historically, to make the buy versus rent decision, consumers and investors have been using the price-to-rent ratio. For a particular region, this has been calculated typically as the ratio of the median listing price (or closed sale price) of homes available for sale to the median annual rental price of available rentals in that area.
Zillow has introduced a new approach to make the buy versus rent decision and compute a metric called the “breakeven horizon.” The breakeven horizon is the number of years after which buying is more financially advantageous than renting (at the precise breakeven horizon one can be indifferent between buying and renting). When living in a home for a shorter period of time than the breakeven horizon, renting is more advantageous than buying.
This metric, for example shows that if you live in a home more than 2.8 years in the Chicago area, you save money by buying versus renting.
You can read the complete article which provides a great deal of technical financial information by clicking on the graphic below.
Whether renting or buying is more cost effective depends on your market, where you choose to live and whether you like to do home improvement and maintenance projects yourself.
There are, of course, other factors in making the choice to rent or buy.
Zillow has another discussion of these factors which you can read about by clicking the graphic below.
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