“Is it better to rent than buy?”. This is one of the most frequently asked questions I get from my millennial clients.
While renting often gets more mainstream attention with millennials, in my experience, buying still tends to be the best choice long term.
With flexible financing options and extremely low-interest rates, buying is easier than ever and should absolutely be considered as an option when you’re in the market for a new home.
Nevertheless, determining whether you should rent or buy requires some thoughtful analysis.
In this month’s post, I will outline the methodology I use to help clients determine if renting or buying is the better choice
Market Analysis
Firstly, I work through a market analysis of the area where the client is considering. I consider the following major data points:
- Home sale prices
- Rent prices
- Inventory
- How quickly properties move
- New construction, is the area growing with both residential and commercial residents
Time Frame
My next step is to understand how long the client plans to live in the area. Generally, if a clients plans on living in an area longer than a year then buying starts to become an attractive option and requires some due diligence and analysis.
Upfront costs and qualifications for buying
One perceived barrier in particular that can derail the decision-making process is the myth that you will need to put 20% down to purchase. This simply is not true anymore, there are many flexible financing options available now. I help my clients navigate through all the options to determine the financing opportunities that work for their individual financial situation.
Calculate rent vs. buy outcomes
With the previous analysis, we can now work with a rent vs. buy calculator to help inform the final decision.
Here’s an example for the Atlanta market:
Measuring a 3 year period, from June 2017 to June 2020, Atlanta housing prices have grown approximately 20%, outpacing the general U.S. market by about 4%.
Overall Atlanta metro is projected to maintain a steady upward growth trend, adding an additional 3 million people over the next 30 years.
Likewise, we know inventory is low and construction continues, both signs of growth.
So from a growth perspective, the buying opportunity in the Atlanta market looks very favorable.
The current Median home price in Atlanta is $329,845. The average monthly rent is approximately $1,700.
With this information and assuming a 10% down payment, I used a rent vs. buy calculator and determined that after 3 years and 2 months buying will be less expensive than renting.
If you buy, after 3 years you would have approximately $100,000 of equity in your home.
Alternatively, if you rented and invested your downpayment and other upfront costs at a 6% return rate you will have earned approximately $8,000.
As you can see, if you plan in living in your home for longer than 3 years, it would be much more favorable to buy in Atlanta.
Are you in the market to buy or rent a home in Atlanta? Contact me and let me help you determine the best option.