# Is it better to rent or buy? How to know when renting a home makes sense

I’ve been a homeowner for 24 of the last 25 years. Based on this, you might think I’m an advocate of homeownership over renting. That’s not the case. The older I get, the more I appreciate there’s no correct answer in the perennial “is it better to rent or buy?” debate. Sometimes buying a home makes the most sense. Sometimes renting is the smarter choice.

In an editorial in the June 2007 issue of Kiplinger’s Personal Finance, Knight Kiplinger wrote, “It often costs less to rent. The annual cost of owning a property, be it a house or a condo, is usually greater than the cost of renting, after taxes.” I agree.

Today, let’s look at a handful of ways to evaluate the rent versus buy decision from a financial perspective.

## The Price-to-Rent Ratio

One way to tell whether it’s better to rent or buy is by calculating the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced. Figuring a P/R ratio is simple. All you need to do is:

1. Find two similar houses (or condos or apartments), one for sale and one for rent.
2. Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.

For example, say you find a \$200,000 house for sale in a nice neighborhood. You find a similar house on the next block for rent for \$1,000 per month (which works out to \$12,000 per year). Dividing \$200,000 by \$12,000, you get a P/R ratio of 16.7. But what does this number mean?

Writing in The New York Times, David Leonhardt says, “A rent ratio above 20 means that the monthly costs of ownership well exceed the cost of renting.” That’s a little opaque, I know. Leonhardt is saying that the higher the P/R ratio, the more it makes sense to rent — and the less it makes sense to buy.

The normal P/R ratio range nationwide is between 10 and 14 (meaning it would cost between \$1200 and \$1600 to rent a \$200,000 house). During the 1990s, just before the housing bubble, the national P/R ratio was usually between 14 and 15 (about \$1100 to \$1200 to rent a \$200,000 house). During last decade’s housing bubble, national price-to-rent ratios rose to 22.73 (in 2005) then to 24.50 (in 2007) before the market collapsed. As most folks were rushing to buy homes, the numbers said they ought to be renting.

Based on this info, I’d argue that:

• When price-to-rent ratios are under 12, it’s generally better to buy than to rent.
• When price-to-rent ratios are between 12 and 15, the financial decision is murky.
• When price-to-rent ratios climb above 15, you’re probably better off renting.

Nationwide numbers don’t tell the full story, of course. While the national price-to-rent ratio might be around 20, the actual numbers in your city could be very different.

## Price-to-Rent Ratios for U.S. Cities

In the past, I’ve struggled to find current price-to-rent ration figures. Recently, however, I learned that Zillow has a dedicated page for researching housing data. From here, you can download tons of different tables related to home sales and rental prices, including monthly price-to-rent info from October 2010 until today. If you’re looking to relocate, this is a fantastic resource for finding where your housing dollars will go farthest!

For kicks, I wasted ninety minutes playing with price-to-rent ratios using Zillow data. (What can I say? I’m a nerd!) I downloaded their list of median home prices and median monthly rents, then calculated the P/R ratio for 48 major metro areas. (For a variety of reasons, this is a somewhat arbitrary selection of cities.) Here’s my list of price-to-rent ratios in the United States as of January 2018.

If you’re moving to Scranton for your new job at Dunder Mifflin Paper Company, it’s likely you’ll want to purchase a home. But if you’re headed to the Bay Area, your best bet is going to be to rent.

I’m somewhat skeptical that these numbers are accurate — they do come from a site eager to create homebuyers, after all — but it’s tough to find better info. As far as I’m aware, there’s no reliable source that generates these stats on a regular basis. (I personally believe numbers from articles like this are more accurate. However, that article is also eighteen months out of date and doesn’t explain its methodology.)

Please note that city-wide price-to-rent ratios only really matter if you’re moving from another town. Otherwise, what actually matters are price-to-rent ratios for the specific properties you’re thinking of buying or renting.

## Home Price vs. Household Income

Another way to gauge the cost of housing is to compare it to your family’s income. From 1984 to 2000, median home prices were about 2.8 times the median yearly family income. (In other words, the typical house cost about three times what a family earned in a year.) During the early 1970s, home prices were about 2.3 times median family income. During the housing bubble, this ratio jumped to 4.2.

These numbers may not mean a whole lot on their own, but they can give you some sort of idea whether housing is overpriced in your area. Plus, it seems safe to assume based on past figures that most families can comfortably afford a home that costs about 2.5x their annual income. (So, if your family makes \$80,000 a year, you can afford a \$200,000 house.)

According to the most recent numbers from the U.S. Census Bureau, the median household income in the United States was \$57,617 at the end of 2016. (Average household income is greater — \$73,207 — but that number is skewed by high earners, which is why I prefer to use the median.)

Using the current U.S. median home price of \$232,700, we can see that home prices are currently running at about 4.04 times the typical household income. This ratio isn’t quite as high as it was during the housing bubble, but it’s still pretty steep. Based on this, renting is likely to make the most sense right now in many parts of the country.

## My Favorite “Rent or Buy?” Calculator

Finally, I want to share what might be my favorite way to compare the costs of renting against the costs of buying.

The New York Times has a great rent vs. buy calculator that can help you decide which is best for you. Just plug in the numbers for your situation, and the calculator tells you how long it would take you to break even if you bought a house. This calculator is an amazing tool. Although it lives behind a soft paywall (which can be circumvented using incognito mode in your browser), it’s well worth using if you’re trying to make a decision about whether to rent or buy.

For fun, I ran the numbers for my own situation. Last summer, Kim and I purchased our current home for \$442,000. When you figure all of the remodeling we’ve done, our actual cost will be closer to \$600,000. (Holy cats!) Based on our situation, the NY Times calculator says that we’d be better off renting if we could find a similar property for less than \$2767 per month.

Scanning current listings, there are three nearby rental homes similar to ours (more than 1200 square feet, more than an acre of land). They’re fetching \$2900 to \$3000 per month. So, it sounds like buying or renting a property like ours in Portland is a toss-up at the moment. (If I run the numbers using our home’s actual purchase price — \$442,000 — I’d have to be able to rent for less than \$2100 for that to be the smarter option.)

## The Bottom Line

Deciding whether to rent or to buy is a complicated financial and emotional decision. I believe it’s a shame when folks who are unprepared get driven into the housing market due to misplaced notions of imagined benefits. Homeownership is not a panacea. Renting is not universal folly.

Part of the problem is the vast Real-Estate Industrial Complex, each piece of which has a vested interest in convincing consumers that bigger is better. (As I mentioned in my recent article on the history of homeownership in the U.S., the real estate industry is a relatively recent invention, barely 100 years old. But in that hundred years, it’s grown into a powerful force in our economy.)

The housing industry does its best to propagate certain myths about homeownership, myths like:

• If you rent, you’re throwing your money away. (This is false. As with all financial choices, there are opportunity costs whether you choose to rent or choose to buy.)
• Owning a home is a forced savings plan. (Also false. Yes, it’s possible to build equity in a home if you buy it in the right place at the right time and/or you stay put for a while. Most folks don’t stay put, however, so they end up paying a whole lot toward interest and very little toward building equity before buying a bigger, “better” place.)
• You should buy as much home as you can afford. (Complete and utter bullshit. You should spend as little as you possibly can. Instead of pushing the upper bounds of your housing budget, as happens in most cases, you should instead be aiming as low as you can go.)

Now, let me be clear. There’s no question that buying a house makes sense for some folks, but mainly for non-financial reasons. Owning a home gives you stability (you’re not at the mercy of a landlord) and freedom (you can do what you want with the place). Heck, last year I chose to buy an eighty-year-old “country cottage” on the outskirts of Portland, so I completely understand the non-monetary reasons for wanting to own.

But there are also advantages to renting.

For one, you have flexibility; you can move at a moment’s notice. For another, you’re not responsible when things go wrong. If the shower starts leaking before you leave for your vacation in Duluth, you don’t have to worry about it — you call in the landlord.

If you decide to buy a home, do it for the right reasons: because it fits your goals and will make you happy. Don’t do it because you think it’s a good investment. A mortgage is not a retirement plan — it won’t make you rich. Instead, think of it as purchasing a way of life.

If homeownership is a lifestyle you want and can afford, then buy. If not, rent.

## Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

### There are 59 comments to "Is it better to rent or buy? How to know when renting a home makes sense".

1. Jen G says 10 May 2018 at 12:05

Oh man…this home series has been such a gift for my current situation. We are selling our home in Seattle which has appreciated greatly over the last 5 years, and moving down to Portland this summer. Our timeline will be tight between home sale and finding a new place in Portland before the school year starts, so I want to rent for awhile – and maybe even until my kids are out of school (5 more years). I’d rather take my time to find the right place..hopefully a forever home, and also let the market cool a bit, rather than rush to buy in a matter of weeks just because we have the money. But I am getting so much resistance from my family who thinks we must be destitute if we’re not going to buy and we don’t care about our children’s stability (not true – in fact, my biggest worry about renting is figuring out how to invest the huge windfall from our home sale until we buy again). This housing series has just reaffirmed that renting is best for us right now….now to convince everyone else (not that it matters, but…)

2. Sheila says 10 May 2018 at 16:48

Some great information and advice that I wish I would have taken a few times. I always talk about our ‘forever’ home in Oregon. We lived in that one three years before we had to move to another state.

3. Frogdancer says 10 May 2018 at 18:11

Wow. Housing is so cheap in the US.
My current home is worth \$1,000,000. It’s a single-storey 4BR, 2BR home on a small block of land in Melbourne.
I bring home \$99,500.
Even I can do the Maths on this one!
Come to Australia and see what a housing bubble really looks like… 🙂

• fredjohnson says 15 May 2018 at 16:34

\$1 mill Australian is only \$750k usd. I’d say you bought too much house for your income. I live in MN. Own a \$525,000 house. Wife and I make \$800,000 a year and another \$300k to \$750k per year in stock market investments. I put my money in the stock market and not in our house. So far, so good.

• CT says 15 May 2018 at 17:04

\$525,000 in MN is like \$1.5M in the rest of the US, or at least in the parts that are nice like Melbourne. In crazy markets like Melbourne, Auckland, Silicon Valley, Seattle, New York you can’t buy the house you probably live in for anything close to that cost.

• tom says 15 May 2018 at 17:00

Melbourne is a major city. Any major city is going to cost more. I live in Los Angeles and every house on my block is three million dollars. It’s not cheap here!

• City Girl says 15 May 2018 at 18:17

Cheap? Try NYC when a decent size 3 bedroom (that is the size like a 1 bedroom in other state) in a decent low crime area would cost over 1 Million easily. better area would be 1.5-2.0 M.
Forget about Manhattan when a small apartment (not house) cost well over 3 M

• John says 17 May 2018 at 09:29

Everyone bragging about their multimillion dollar homes and how expensive their area is.. I grew up in SF, studio apartments have gone for as much as 5k per month! A CONDEMNED house just sold for 1.4m… CONDEMNED!! How’s that for cheap. Now I’m in LA and where I’m at you can’t touch anything for much less than a million and even those are original, crumbling buildings, unless you’re in South Central.

4. Joe says 11 May 2018 at 06:16

Portland is pretty high up there on the list.
I still think it’s better to own because I’m bias. Being a property owner worked very well for us even with the housing bubble 10 years ago.

I’d probably rent when I’m older, though. There are too many issues when you’re a homeowner. Renting is much easier.

5. WantNotToWantNot says 11 May 2018 at 06:26

Terrific column and resources list, J.D.

I was just so disheartened when, a few years ago, two of my sibling’s kids were encouraged to “stretch to buy the biggest house you can afford and you’ll grow into it.” AGH! Now I watch them struggle to pay the mortgage and living, basically, paycheck to paycheck, hoping for raises and bonuses. If they had bought less and invested that extra money, it would have transformed their financial lives.

Your advice is golden–figure out the rent-versus-buy options, and then pay the least you can. If you buy, plan to stay put for a long time to make it worthwhile. Shop for a long time and consider all the aspects of a home–the commute if you work, the soundness of the foundation, the school district if you have kids, etc.

But for all that, buying a home (as opposed to a house) is also a highly emotional decision. So many expectations and aspirations can be tied up in the place we choose to live. I’ve made good and bad real estate decisions in my life, and I find it a little like choosing a significant other–you try to logically analyze all the factors for the attraction, but in the end, you go with your gut and hope for the best!

6. lmoot says 11 May 2018 at 07:05

For me, renting may have been cheaper, for at least the first decade maybe (fixer upper costs). However I got more back than I would renting. It was the lifestyle I wanted, and sometimes you pay for the lifestyle you want. What good would spending less to rent do me, if I want to own? That’s not value IMO…paying for something you don’t want.

So yes, owning can certainly cost more, but it’s more complicated than comparing the numbers…what is each person getting in return for what it costs?

I could rent and not have to pay for repairs. But what if I WANT something repaired or remodeled because it’s not up to my standards or taste? I doubt the typical landlord is going to address that. So don’t equate not having to pay for things like renovations as a renter…with a landlord paying for it, because often times they don’t unless it’s a safety hazard. You’re not paying for a new kitchen, because you’re not getting one.

Many homeowners renovate because they have to, but also because they want to…and they pay to have that option.

• FoxTesla says 11 May 2018 at 11:07

Exactly this. When it comes to the quality of the residence, owning wins.

Yes, from a total money standpoint I could spend less to have an apartment, but then I have particle board kitchen cabinets, electric coil oven and stovetop, small stacked top-loading washer/dryer (if I’m lucky enough to have that in the unit!), who-knows-how-old carpet, guaranteed door dings from pickup next to me in the assigned parking, hearing neighbors through the single (maybe insulated?) wall of drywall…

• Beth says 12 May 2018 at 08:59

I used to live in an apartment like that and had to move because the it became unsafe. Now I’m in a much nicer, better maintained apartment building, and hesitant to trade that for the run-down houses in my area (which is pretty much all I could afford with our local housing bubble.)

There are crappy houses just like there are crappy apartments 😉

• lmoot says 12 May 2018 at 09:08

@Beth, no doubt about that! And there are rentals nicer than my house. But being able to fit a property to everyone’s standard of “nice” is difficult so there are bound to be instances of frustrated renters who are stuck with features they don’t like and can do nothing about. Also, in the attempt to keep things as neutral as possible, even the nice apartments tend to have a very bland appearance (unless you are renting an historical property).

But I didn’t mean to turn this into rent/vs own, though it’s nice to see both sides. The only renting I have done is student apartment living while in college. After that I went back home, and soon after bought my house…so I recognize that my experience is extremely limited when it comes to renting. I know people who make terrible homeowners (once upon a time I was one). Becoming a landlord over my own house, tested me and made me a better homeowner. I was challenged to take on things I never would have done had I rented, and I’ve learned so many skills that I am ever grateful for.

• SpartanLinx says 16 May 2018 at 06:54

There are crappy apartments just like there are crappy homes. I live in a spectacular home which I couldn’t even begin to afford buying right now. Renting doesn’t mean getting ‘particle board’ apartments, there are so many options on the market!

• Beth says 12 May 2018 at 09:06

Excellent point about lifestyle. It’s part the reason I rent, actually. I live in a newer building, so repairs and renovations aren’t an issue, and I don’t really care about decorating. (I am allowed to paint the walls, change the blinds, etc. but I never felt the need to)

I wouldn’t want to live here for 10+ years, but I don’t have time for decorating and gardening anyway. Right now buying would be too expensive, and too much risk.

7. S.G. says 11 May 2018 at 07:24

Yes. I believe home ownership has been hyped because people misread the data. They read that homeowners tend to be more stable economically and they think economic stability can be achieved by making more people home owners.

There are people who just shouldnt own, though i doubt many of those people read your blog because it has to do with money handling skills. But, as you say, people with fair to good financial skills get caught in the bias for home ownership as well.

I disagree with most of the “it’s NEVER a good idea to own” crowd because it does make sense for so many people like me. I’ve been in the same house for 12 years and have a fair amount of equity if/when we decide to move. And I haven’t had to deal with landlords. But i totally understand the other side both emotionally and economically.

Even then, I agree with setting the budget. For our first house our broker qualified us on a single income and we chose based on the house we wanted, not what we could afford.

Sometimes, for fun, I go to mortgage calculators to see what they say we can afford and my eyes bug out, then I laugh. I think we’re up to 3-4x what our current house is worth. I can’t imagine trying to make that payment.

8. Ris says 11 May 2018 at 08:33

I live in Pittsburgh and while the house price on that list looks like an unbelievably affordable \$143,000, those are houses in neighborhoods that I would not buy in. They’re far from public transit, not centrally located or walkable, and just generally out in the ‘burbs where I have no desire to live, especially own. I live in the middle of the city in the most walkable neighborhood and pay \$1,100 for rent (all utilities included, free parking), split with my husband. Could I afford to buy a house in this neighborhood? At an average house price of over \$500,000, absolutely not. But man, I love living in this neighborhood and it affords me a high quality of life.

• S.G. says 11 May 2018 at 16:24

Do \$1100 per month and \$500k to buy get you comparative properties?

9. Jacob G says 11 May 2018 at 13:18

I kept thinking about this over and over until I finally did buy my current house 3 years ago. Since then I have not regretted the decision one bit. Renting prices are insane here as it’s a college town with rich students creating demand with full pocketbooks.

Something else I always see people say is a big advantage of renting is the flexibility that you can leave at a moment’s notice – that makes me wonder how it is elsewhere because here that in no way describes our rental market. For the vast majority of properties you must sign at least a year lease, and typically around August-July for the school year (student influence again). In a lot of ways here I feel it’s actually MORE flexible to own, unless perhaps you’re in a less desirable location or it’s a bullish buyer’s market (which it kind of is now).

I also don’t mind the fact that in the 3 years since I made the purchase the “assessed” value of my property has risen over 25% (estimated value even higher), although I know that trend won’t last. It’s also meant taxes aren’t quite what I expected though, so I’m glad I didn’t overspend to begin with.

10. offroad investor says 11 May 2018 at 18:11

The rent vs buy decision can also vary greatly depending on the ‘seasons of your life’. I have 3 kids in school and the thought of renting (along with the potential instability of where you live) really doesn’t make a lot of sense. When the kids are gone…maybe.

One misconception is that if you own, your house is a major appreciating asset that is essentially part of your portfolio. Rates of return on houses over the long term are pretty low and hopefully most people have ditched this philosophy after the housing bust (although folks in hot housing markets like the northwest might still believe in it)

• fredjohnson says 15 May 2018 at 16:50

In the last 15 years, my house has appreciated 5%. I mean in that WHOLE 15 years. I live in the Mpls burbs. Owning here has been a wooden nickel. Been absolutely horrible.

11. JanBo says 12 May 2018 at 09:31

With more and more boomers without pensions, I wonder if moving and renting is still as easy as it used to be. I know that moving and getting a mortgage without a job (not an income- a job) is nearly impossible for those over 65. Is this becoming and issue in renting? I wonder if owning in our old age is going to be more and more important as pensions disappear. I certainly don’t want to be forced to buy into a continuing care community if I don’t want to be there.

12. fredjohnson says 15 May 2018 at 16:43

After owning a house, a condo and a town-home at different times over the last 30 years I can completely agree with this author. The major reason I bought was to have control of the place, to get rid of a landlord. But, you still have a “landlord” if you own. They would be the bank holding your loan, the County tax assessor, the homeowners insurance dude and all the contractors to fix your place as it breaks, and there is lots of that—-breaking down I mean. Just in the last 9 years alone on a 16 year old house I’ve paid—–\$22,000 for new roof/shingles, \$5000 new furnace, \$3000 to paint the trim on outside only, \$4000 on new lawn equipment and crap for the yard, \$3000 for landscaping and I’ve probably forgotten a few thousand… Don’t believe the carnival barking real estate agents, building contractors and their kind. Rent first and think long and hard before buying. You better have money to throw away if you buy.

13. gena says 15 May 2018 at 16:45

I have rented many places when I was younger and it suited my life style. But as rent got higher I bought a new house in another county. The drive to work was the same. The house payment was less. I felt like I was “home”. Over the years rent kept going up but my house payment stayed the same. When my house is paid in full like many home owners do, zero mortgage payment.
I also like to decorate and garden.

14. John C says 15 May 2018 at 17:02

One factor I did not see mentioned is the cost of the rent increases every year. The charts only showed the same rent costs for all 20 years. My home is worth 4x what I paid for it 23 years ago so I think I did pretty good.

• Chris L says 15 May 2018 at 19:21

I saw the same thing. If you don’t factor in inflation, then renting seems better. Given that you renew your lease plus associated moving costs on an annual basis, renting becomes much less appealing. After 5 years of owning this house in San Antonio my mortgage is way below the costs to rent in the same neighborhood. This is offset by the repairs and upkeep, but give it another 5 years and Ill be way ahead. Once the mortgage is paid off my Social Security will more than cover the property taxes, and I wont have to work. If i was renting any fixed income would not be able to keep up with the rental inflation.

Paid \$130,000, currently worth over \$160,000. Mortgage plus escrow \$1000/mo. Comparative rental is about 1200-1300. 5-10-15 years from now my mortgage will still be 1000… What will the rents be?

15. Ian says 15 May 2018 at 17:10

The biggest problem is the induced demand created by the very concept of mortgage and compounded interest.

There is a third way vs. rent or buy (with a mortgage) which is to BUY CASH.

Settling up for a low rent for a few years then pony up 100k+ cash would be a good strategy.

Then continue saving while just paying for real estate taxes, utilities and maintenance for a few years and sell to move up, and continue this every 5-7 years until one is set where they want to be vs. paying the interest which is throwing money out the window.

16. Julie says 15 May 2018 at 17:14

What about a comparison of owning in a 55+ mobile home park vs buying? Right now with my stick built house I am paying \$500 in interest per month which I will never see again and \$200 a month in property taxes and about \$100 a month in insurance. Mobile home park rents are \$300 to \$600 per month and can include water, sewer, and garbage, some or none. I have the money to buy a decent mobile home in a 55+ park with cash, no financing. Plus there would be security and some activities. So I am trying to decide if that would make sense. I would get much more space for the price in comparison to a stick built and would purchase one in good condition. I know there are risks as to whether a park will get sold out from under me and park rents seem to go up each year but so do taxes. Any opinions out there?

17. Happy Owner says 15 May 2018 at 17:18

This is like should I lease a car and only pay for the time I have it or buy it question. Bottom line for me… is that our home is PAID FOR in Full. I cannot a find a place a live for free anywhere and even if we had been ‘saving’ the difference (and lost it all in the recession) there is not enough to pay the rent until I die!

18. MikeC says 15 May 2018 at 17:28

I would love to see someone factor the appreciation into a calculation. It’ll make more sense to buy in an area where houses appreciate more. Then after just a few years in some areas (to several years in others) there would be profit, and it would make more sense to own.

• JD says 21 April 2019 at 14:36

I agree. The post makes many good points, but the rent vs buy analysis also appears to only factor in monthly cost without crediting equity growth (especially if someone owns a house for many years, accelerates mortgage payments, or saves and buys in cash without a mortgage). Would be more useful for the analysis to include or at least acknowledge the missing factors.

19. City Girl says 15 May 2018 at 17:41

“Major Cities” without New York City????????? really?

• J.D. says 15 May 2018 at 18:06

Yeah, that’s an issue. The problem is that the dataset I was drawing from did NOT include NYC rental info, so I couldn’t include it. But if you go to the Zillow page that I linked to above, there are a variety of other ways to get NYC data. (If I recall correctly, NYC price-to-rent ratios were high, but not the highest.)

• Stephen714 says 17 May 2018 at 13:34

It’s just not true that your own home can’t be a good investment. My parents lived in a middle class neighborhood in Northeast Philadelphia and from 1961 to 1994 their house went from \$16,000 to \$100,000. Even better is the house I live in now which I bought in 1990 in center city and is now worth \$1,000,000. There is no way I could afford an equivalent home or apartment at today’s rates and my income. This house has truly been the best investment ever.

• J.D. says 17 May 2018 at 14:01

Well, I hope it’s not coming across like I’m saying a home CAN’T be a good investment. What I’m trying to say is that it’s now ALWAYS a good investment. There are a lot of factors involved. The issue is that there’s a vast industry trying to convince folks that homeownership is the answer, that it’s part of the American Dream. It’s just not true. Maybe sometimes it’s true, but not always. Does that make sense? The issue is nuanced, but the homebuying industry tries to make it sound like the answer is obvious.

20. Andy says 15 May 2018 at 17:50

Hey J.D. thanks for sharing this. It is coming more and more relevant in the big cities to make these considerations. I think that a lot of the ‘smaller’ cities off the coast are going to see a resurgence once people are priced out of other areas.

21. jeff says 15 May 2018 at 17:57

I have zero interest in moving. Lived at this house for 20 years now prior to that I rented and I absolutely hated it. Moved more than a dozen times, rent prices where higher than mortgage prices, I had a landlord steal from me (had to involve the police to get my stuff back), my state has like no laws to protect renters so landlords can raise rental prices at whim, and the landlords refused to do maintenance nor would allow me to do them (things like paint a pealing wall or replace a broken step).

22. Eugene A. says 15 May 2018 at 17:59

Since when is San Jose more expensive than San Francisco? SF is and has been #1 for a few years. Somebody wasn’t doing their research properly, huh?

On top of that, buying in SF is extremely difficult due to a very limited stock available. The city is simply too small, there is no room to expand and there are way too many people with money. So prices are through the roof.

And I looked at Boston. Also delusional – an apartment worth \$400K over there doesn’t rent for \$2800. Maybe around \$2K tops. \$400K is relatively cheap for Boston nowadays as well.

• J.D. says 15 May 2018 at 18:07

I was surprised by this too, but MULTIPLE sources show that San Jose is more expensive than San Francisco. It’s not just Zillow saying it.

23. C. Powell says 15 May 2018 at 18:01

Thank you for this. I plan to save this article and forward it to my mother the next time she insists we buy a house in Los Angeles. Our neighborhood is at \$850,000 – \$900,000 for a three bedroom. Renting a three bedroom house is \$2,400. That puts our P/R ratio pretty high. We are so happy to rent right now.

24. india just says 15 May 2018 at 18:21

The real costs are the opportunity costs. I was unable to find work 9 years into a fixer upper, I could not sell, and I could not afford to pay others. I gambled the market would recover and spent 5 years squeezing as much work and barter into the house as possible… selling when I had \$19k left. I doubled my money going from 20% equity to 80%, but I calculated that even with 2 stock market crashes I would have been better off investing the downpayment and repairs and renting. Real estate cost me 2 relationships, a career, and my sanity.

Real estate is a financial target and tax nexus for white collar thieves of all description.

I have rented two years in Vermont and my net worth is up almost as much as the house in 19 years.

25. JM says 15 May 2018 at 19:15

We believed the old story that we were “throwing our money away” on rent. Since moving into a modest home 3 years ago, we’ve had to replace the rotting windows, the furnace, the hot water heater, leaky pipes and the walls and ceiling they destroyed, and a host of other things. We’ve had to hire exterminators and landscapers. The borough made us replace our perfectly good sidewalks to bring them up to a new code. We are now responsible for utilities, insurance, garbage removal, and taxes that we never had as renters. It has wiped out the savings we amassed as renters. If we sold the house today, we wouldn’t make what we’ve put in to it. If I had it to do over again, I wouldn’t.

26. Franci says 15 May 2018 at 19:36

There are two aspects of renting that were not addressed within the article. Firstly, that rent payments can (and usually do) increase by as much as \$100 per month every other year. Secondly, when you are renting, your monthly rent payment is gone with nothing long term to show for it. In purchasing a home, your monthly mortgage payment is essentially increasing your overall long term wealth. Just an opinion from my many years of personal experience. Many people are afraid to buy after losing there homes during the housing crisis (created by the banks by the way) along with those who are financially unable to purchase their own home. Banks nationwide have been buying up homes for sale across the country, thereby, controlling the housing market completely. Rental costs have increased significantly in CA as a result.

• Courtney says 16 May 2018 at 00:50

The calculator from the NYTimes does have a “Rent Growth Rate” on it. That accounts for the rent going up.
Also, I found that putting in a minimal 1% maintenance/renovation (\$2500) is less than an extra \$100 in rent each month. When I owned a house, we ended up with more than 1% the first 3 years of ownership.
The calculator was interesting. Using real data, I would have to be in a house for 35 years before I would break even on the rental assumptions. Currently, my rent is \$350 below a mortgage in my area because we are headed toward a bubble again. Throw in high property taxes, and owning doesn’t look as nice right now.

27. Doug says 15 May 2018 at 22:17

Price to rent in my area (Portland) is much more challenging in my opinion, because there are very few houses for sale or rent and an extreme shortage of housing exists. You can talk all day about a \$375k house renting for \$1800/mo but you can’t find either one in the area you’re halfway interested in.

It is not an efficient market here. When a market is like this (here): you want to own if you can afford it.

I’m a landlord with 10 properties. And I am a homeowner, and have been one since 1974. I have paid too much for a house, and I have grabbed some great bargains.

On the other hand: if there are lots of houses for sale and lots of houses for rent in any given area then you don’t want to do either, because prices will fall.

28. DJ says 17 May 2018 at 08:59

What about rapidly inflating rents in this calculation? In NYC, one of the attractions of buying is to lock in the expense vs the forever increasing costs of rent (10% / year in attractive neighborhoods, easily).

29. Luis Garcia says 17 May 2018 at 11:41

Wow the houses from these places are really expensive and must be really nice. A 1 bedroom condominium in the Philippines only cost \$50,000.

30. Kathy Crouch says 17 May 2018 at 14:32

I currently rent. The place is a heck of a lot smaller than I would really like. I still have to maintain the yard same as owning a home. I think the only time renting is better is when something breaks and you call and say hey my XXXX broke and they send someone to fix it.

31. Allen says 17 May 2018 at 15:02

Am I missing something? It seems to me that in order to do a break-even analysis you would need to factor in the theoretical sale of the house after the break-even period and count that payout as part of the equation vs walking away empty-handed from a comparable rental at that time.

32. jessie says 17 May 2018 at 16:12

Should an 87 year old woman on a pension, sell her house that is paid in full, and invest the money and then rent.?

• J.D. says 17 May 2018 at 18:00

This is a great question. I’d say, “Probably not.” But it depends. If this person has cash flow issues, then selling and renting might make sense. Or a reverse mortgage might make sense. But if the person in question has some cash reservers, then absolutely not. Stay put!

33. jeff t says 18 May 2018 at 10:37

34. Charles Carter says 19 May 2018 at 10:05

Excellent, excellent post. Comments on the real estate industry are new to me and excellent.
Mixing investing and one’s home is a dicey proposition. One should look very closely at the financial aspects of home ownership (e.g. the NYT calculator), but that’s equally true of buying a car. “Home is where the heart lies”. There is value, sentimental and otherwise, that real estate markets cannot assess. And investments generally are things which can be liquidated to meet other needs-emergencies, retirement, etc. Most of us sell our home in those situations only when financial ruin is the alternative. There are more effective ways to invest in real estate.

35. Charles Carter says 19 May 2018 at 10:18

I should add that I’m currently renting, for a variety of reasons. In keeping with the article, one reason is, single with grown children, I don’t need or want much house. But houses where I’d like to live are almost all much larger than I want.

36. Wayne C says 20 May 2018 at 21:59

J.D.,

Thanks for this article. It is thought provoking. Given the constraints of an article like this to look at the complexities, I understand your use of Price to Rent ratios. However, I would imagine that these ratios only hold in the current low interest rate environment. Would these ratios not change in a different interest rate environment? I currently live overseas in an environment where interest rates range from 18% to 36%. How would this affect the 12 to 15 ratio being neutral territory and below favouring buying and above renting guidelines? Would they not shift the neutral zone up?

• Wayne C says 20 May 2018 at 22:58

Sorry, got it backwards there. I think higher interest rates would probably shift the ratios down. A higher interest environment, would require a greater rental return for the investment. Therefore, Price to Rent ratios would be lower.

37. Catherine says 24 May 2018 at 03:04

This is fantastic, thank you. The data you provided supports what I have already theorised about renting versus buying, and it’s good to have my suspicions confirmed by someone with experience. I have been renting for many years – the majority spent in London where home-ownership is largely unaffordable for all but the richest – and the myths are strong. I consciously resisted the pressure to feel you should buy a property and ignored the constant hand-wringing that the young are being kept off the housing ladder. I have now moved to Manchester where prices are a lot more affordable and am considering buying a property in a couple of years. It’s hard to resist the hysteria but posts like this make it easier.

38. Millie Hue says 07 December 2018 at 16:47

It really helped when you said that we could check some sources first to see if the price of the house is just right. I will share this tip with my sister to help her buy the right one for her budget. She just has a limited budget because she doesn’t plan on loaning money to get a house, so she saved up. http://www.outstandingdfwhomes.com/fort-worth-s-big-secret