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Nov 13 2012 12:00AM

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Question

Is it better to rent or buy a home? I am 62. My employer is relocating me to another state and is offering me incentives to buy a home. The market in the new location is approximately 40% higher than from where I live now. Does it make sense to make a 20% down payment and buy a home with a long term mortgage? Or, is it better to rent a home and keep the down payment invested?

Answer

First of all, this answer will be general in nature as I do not know all your circumstances. That is, your assets, liabilities and experience as a homeowner. 

The fact is that there is no one right answer. In the past, generally it made sense to own over renting but, as the real estate bubble inflated, some markets became way overvalued. Now, however, there are some markets which have tremendous values.  

The question you really are asking is - "What is the highest and best use of my dollars? Will I get a better return on my investment by taking the down payment and investing in real estate or can I get a better return in some other investment?" 

David Leonhardt from the New York Times has been tackling this subject for many years. If you Google his name or New York Times Rent vs. Buy he will pop up. He developed a simple calculator which I think you will find helpful. Below are some questions and considerations to help you make your decision. 

  • How long do you expect to live in the house?
  • Mortgage interest rates are as low as they have ever been. 
  • Will you need to sink money into the house to upgrade it?
  • What are the taxes and other expenses (condo fees, etc.)?
  • Are you planning on retiring in this house?
  • What are comparable rents in the new location? 
  • What is the breakeven point for your down payment vs. using that for renting? 

The calculator will help you to reason through some of these questions as well.  

I hope this helps you make the best decision for your situation.

 

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