Van Henry Realtor | Renting vs. Buying Article

Rent vs Ownership

The average monthly lease on an apartment in Austin passed the $1200 per month rate. There are less expensive apartment in the Austin area, but they generally come with a cost. Convenience, mobil accessibility can present challenges to those seeking to enjoy working in Austin. One question that is often asked is should one rent, or purchase. While the ultimate decision has to be in your best interest, lets look at the cost of renting vs purchasing a home.

Both apartments and homes have similar costs. Utilities, internet, waste collection fees, etc. Apartments may “hide” some of the costs by including them in the rent, but you are paying them non the less. For comparison seek I am not going to inculde the price of phone service, or internet.

Monthly Rent  |  Mortgage (on a $330,000 average price in Austin)
$1,200  |  $1643 (assumes 5% down –$16,500 and a 4.79 interest rate
$1,200 (deposit)  |  $489 (insurance, property tax)
$250 (renter’s insurance)  |  $0

Total monthly cost
$1450  |  $2132

At first glance, it seems rent is much cheaper and initially it is, however over time several things happen.

Year one cost
$17,400  |  $42,084 ($25,584 plus $16,500 down payment)

Year one appreciation
0  |  3.5% (conservative estimate $11,550)

Year one return on investment
Negative $17,400  |  Negative $30,534

Year two appreciation (3.5 compounded)
0  |  $11954.25 (3.5 compounded)

Year two return on investment
Negative $34,800  |  Negative $18579,75

Year three appreciation
0  |  $35,876.89

Year three return on investment
Negative $52,200  |  Positive $17,297.14

Year four appreciation
0  |  $37868.58

Year four return on investment
Negative $69,600  |  Positive $55,165.72