Excerpt taken from:

Take Cover

Comparing the Costs of Renting vs. Buying Shelter

John M. P. Knox & D. Matthew Landry

© 2006 by Moving Average Inc. All Rights Reserved.

Chapter 4: Some Options and Considerations

Buying just a typical single-family home is not your only option. Though the American Dream explicitly includes a three-bedroom two-bath suburban home (white picket fence, apple trees, golden retriever, &c., &c.), other living quarters are available for purchase.

Depending on your city, you may find condos of all shapes and sizes, duplexes, and even hotel rooms available for purchase. Not all of the costs itemized above will apply to all of the options out there. Feel free to augment or amputate the list to fit your needs—you know your needs better than we do. Hopefully you don’t find yourself needing to purchase lawn mowers and garden hoses for your condominium penthouse on the 20^th floor!

Between the notion of purchasing a property and renting one is the so-called Lease Option contract. The first part of a Lease Option consists of a rental agreement for the property that works much like any other—the ‘lease.’ You pay a monthly rent for the property. The other half of the Lease Option is an ‘option’ to buy the property for a price set forth in the contract.

Other Considerations

There are a plethora of Real Estate Aphorisms that all essentially mean the same thing: “the three most important things are location, location, and location,” “all real estate is local,” and so on. These sayings try to convey that a very small difference in location can have a very large impact on the value of a property. Seemingly simple changes—a corner lot, a better school district, the distance to downtown, atop a mountain—can have a surprising impact on cost.

The tyranny of locality works on a wider scale, too. One city may have a booming rental market because of the unreachably high housing costs. Another city may have such a glut of homes for sale that the apartment complexes have to give away six months’ worth of rent just to get people interested. Those cities could easily sit right next to each other.

How You Should Use All of This Information

Now, having determined where you think you want to live and how long you’re going to be around (easy, right?), how do you find out whether buying the house beats out renting? The Appendices include expense calculation sheets. These make short work of documenting the various costs and fees. The bottom line is that if the monthly mortgage interest + taxes + insurance + maintenance + other costs – any of those diminishing income tax benefits is greater than or equal to your rent, it doesn’t make financial sense to buy a home.