My wife and I have been considering buying property now that the housing market appears to be bottoming out (at least in Miami). We have been struggling for a long time on the decision whether or not to continue renting. I have done the math on both sides of the equation and have used over a half dozen "rent vs buy" calculators available on the web. As expected, based on my preliminary calculations, the result is tightly coupled with the model assumptions regarding "Home Appreciation Rate" and "Number of Years Expected at Property". If you are interested in performing these calculations for yourself a good example can be found at the following link Rent vs. Buy Home Finance Calculator .
I am amazed at how polarized people are on this topic as it sparks the same kind of emotion surrounding discussions about abortion, politics, or religion. An interesting debate to illustration my point can be found at the following two websites.
After doing months of research and exploration into this topic I have developed a Theory which I call "The Three Fives" or 555 theory. The 555 theory is purely based on mathematics and does not take into consideration personal preferences or obligations. The following assumptions were made in the development of the 555 theory. The 555 theory assumes that the monthly mortgage payments are equal to or less than 30% of your combined monthly income. The 555 theory assumes no association fees and an average monthly maintenance cost of less than $300 a month.
If any one of the rules listed below evaluate to false than consider seeking financial consulting from a trained professional before making a decision to rent or buy property.
- First Five - If you are going to live in a location greater than 5 years consider buying.
- Second Five - If you can acquire a loan with an annual percentage rate of 5.x or less consider buying.
- Third Five - If the difference between the Minimum Annual Expected Appreciation Rate of the House and the Current Inflation Rate (www.inflationdata.com) is greater than 5% then consider buying.
Additional Rent Biased Information
Wall Street Journal: Your Home Isn’t the Nest Egg That You May Think It Is
New York Times: A Word of Advice During a Housing Slump: Rent
New York Times: Is it better to buy or rent? (graphical calculator)
The Motley Fool: The Worst Investment Ever
SmartMoney.com: Renting Makes More Financial Sense Than Homeownership
CNN Money: Stocks vs. Real Estate
Priced Out Forever: Renting vs. Purchasing
Additional Buy Biased Information
ABCNews.com: Five Ways to Get a Good Deal on a Home
Tags: Renting, Investments, Buying, Home Owner