Is it better to rent or buy? We’ve discussed this age-old housing question several times in the past, but it’s always been on a theoretical level. Sometimes what seems simple in theory is tougher to figure out when you have to make a decision in Real Life.

That’s the case for Erik, who dropped a line yesterday to ask whether, based on his personal circumstances, he should rent an apartment or buy one. Here’s what he has to say:

I currently live at home with my parents, but I’m now engaged and looking for an apartment with my fiancée, which we plan to move into in January or February.

Here are some more details:

  • My fiancée is 24, and so am I.
  • Together we have $17,000 in liquid cash and $8,000 in non-retirement investments.
  • After taxes, we take home about $5000 per month.

Since we’re waiting until January to move, we should have about $27,000 in liquid cash to work with. We might have more, but this number seems safe.

We live near New York City. In the areas we’re considering, a one-room apartment rents for $1200 to $1800 depending on which town (Queens, Great Neck, Little Neck, Douglaston). Most of them are old places without any updates.

Or we could buy a pretty decent one-bedroom apartment for between $160,000 and $180,000 — though we’d also have homeowners association fees of between $500 and $600 per month. I’ve looked at mortgage calculators, and it seems that with a mortgage and HOA fees, our housing payment would be almost the same as a rent payment.

We don’t have any credit-card debt, and our credit scores are great. Other monthly costs (including a car, student loans, cell phones, and so on) are about $1000, though there’s some fluctuation. I’m a teacher on Long Island, so my salary is very predictable. But my fiancée’s salary isn’t predictable at all because she’s working at an entry-level job.

So, I guess I’m wondering: Does it make more sense for us to rent or buy?

First, Erik and his fiancée are to be commended for their fine financial situation at 24 years old. I think they’re doing great. Plus, it’s awesome that they’re willing to think about their housing situation, and to make a considered decision instead of just acting on impulse. Housing is the biggest expense for most people, yet it’s one they think little about. Erik has a chance to have a huge impact on his financial well-being by making a good decision here.

Having said that, I don’t think there’s one right answer to this question. Either renting or buying could be good, but it depends on a lot of factors, including:

  • How long does Erik plan to live there? If he plans to stay put for a while, buying makes more sense. He’d have time to recover costs, and he’d be able to build some equity.
  • How does he feel about owning his own apartment? For some, owning a home is a piece of the American Dream. For others, the chores and maintenance are a nightmare. Erik’s feelings about homeownership are just as important as crunching the numbers.
  • How are rental prices in New York? Housing prices? If one market is significantly attractive, that should play a role in his decision.

It sounds like Erik has already played with some online calculators. He might also want to tinker with the New York Times rent. vs. buy calculator. This thing is very useful, and will let him toy with a lot of parameters to see whether one choice is significantly better than the other.

So, which should Erik rent or should he buy? To be honest, I don’t think there’s a clear-cut answer. (And if there were, I don’t think he’d be asking the question.) If I were in his shoes, I’d keep both options on the table. Between now and January, I’d keep a close watch on apartments, both those for sale and those for rent. This will help him get a feel for current market conditions, which will let him know whether something’s actually a good deal.

My top piece of advice, no matter which option Erik chooses, is to keep housing costs low — less than 25% of gross (pre-tax) income, if possible. Doing this one thing will do more to help his long-term financial future than anything else.

What do you think? Should Erik rent an apartment? Or should he buy? If you were in his situation, which would you choose? Why? Are there specific factors that might push you one direction instead of the other?

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