Have you ever considered how much you pay in rent over an extended period of time? It is probably a lot more than you realize. The amount you spend for rent each month could be applied to a mortgage, not only building equity in your own property, but, in most cases, substantially reducing the Federal and State income taxes you pay each year. And, what happens to your rent money? It’s gone! There’s no interest, no equity, no return.
We've put together a chart to break down how much money the average renter will spend over the years: Perhaps you're still not convinced that buying a home is the better choice for your personal wealth, here's a side by side comparison of the key-takeaways from renting or buying your home.
Another rent vs. buy comparison can be calculated using the price-to-rent ratio.
The price-to-rent ratio is a well-established economic principle used for real estate valuation. It is typically calculated as the ratio of home prices to annualized rent in a given location. At its most basic level, the price-to-rent ratio is a benchmark for understanding whether is it better to rent or buy a property.
Usually, if the price-to-rent ratio is anything less than 20, then buying may be the better option. This goes without saying but any price-to-rent ratio is only useful when comparing close to similar real estate properties.
It’s also extremely important to rank and weigh what makes each real estate property unique and special. If you're debating between renting a two-bedroom in New York City or buying a newly built 3 bedroom home in the suburbs -- the price-to-rent ratio would not apply. There are too many differences and benefits between the two properties and you need to make an educated decision based on your own wants and needs.
If you're reading this and you're ready to explore buying your first home, here are key real estate professionals that you need to know:
KEY REAL ESTATE PROFESSIONALS
Knowledgeable, customer-focused professionals are available to answer your title and settlement questions. Throughout the home buying and selling process, you may also encounter the following industry specialists who are able to professionally answer questions in their area of expertise.
REAL ESTATE AGENT
Licensed by the state to represent parties in the transfer of property.
Objectively and independently provides a comprehensive analysis of a home’s major systems and components.
A representative of a bank or other financial institution. They help customers identify their borrowing options, help them understand the terms of their loan, and are responsible for providing the Closing Disclosure to the borrower.
Works on behalf of a lender and provides a market analysis of the subject property. An appraiser’s finding is subjective and combined with market findings of sold properties within the surrounding neighborhood.
Helps a home buyer determine the homeowner’s protection coverage needed and then finds the right insurance policy to fit those needs.
REAL ESTATE ATTORNEY
Can give advice on all legal aspects of the real estate transaction. Additionally, they are able to draft and review contracts, help decide how to take title and assist with the closing process. In some states, real estate closings can only be conducted by attorneys.
A non-biased third party who works with all participants to facilitate a successful closing of a real estate transaction. At closing, the closing officer will collect the purchase money funds from the buyer and lender as well as the settlement costs from each party. They disburse the funds in accordance with the closing documents and record the necessary documents to transfer ownership of the property.
Performs title searches to ensure a clear title so a title insurance policy can be issued. In some states, they facilitate the transfer of real estate. This is where Hamlet Title Agency comes in. We are a family owned and operated full service title agency since 2004, with over 100 years of title experience. Keep us in mind when you're buying your first home, we will provide you with the best title insurance and 24/7 customer service so you can always reach us with any questions.
Check out our helpful resource for first-time homebuyers, "The Ultimate Guide to Home-Buying":