Buying a home is often considered the biggest financial decision people make in their lives. As a result, it makes sense as to ask yourself whether buying is the right choice when compared with renting. Unfortunately, this decision can easily get bogged down with the many assumptions and costs that go into renting vs. buying a home.
This post aims to fix this by simplifying the decision process to focus on the few key variables that will make a difference in the long run. By the end of this article, you’ll have a clearer understanding of which factors to consider when answering the question, “Should you rent or buy a house?” And, in doing so, you will be better equipped to make an informed choice for your future housing needs.
With that being said, let’s look how to model the buy vs. rent decision in a simpler way.
Simplifying the Renting vs. Buying Decision
When it comes to renting vs. buying a home, I want you to think about each of these decisions as leading to some future bag of money.
When it comes to renting, that bag of money is just the money you save by renting (instead of buying) invested into a diversified portfolio over time. For example, if the rent for a house is $4,000 a month and buying the same house would cost $7,000 a month with your mortgage, property taxes, maintenance, and insurance, then you will be initially saving about $3,000 a month that you can invest into a diversified portfolio. Of course, the monthly savings will change over time (based on inflation), but this is a simple way to think about it.
When it comes to buying a house, the only thing you should care about is the future value of your home. So
