Should I buy or rent a home? Let's look at the following scenario:
A single women, or man, making $60,000 a year: A couple of years out of school with great prospects for income advancement. Nether has any immediate intentions to be married (answers a tax question), but do see the possibility of leaving the area in the next couple of years for job advancement. Their location needs put them in a rental market of around $1600 a month for a 2 bedroom apartment, and $300,000 for a home. Interest is calculated at 4.2% on a 30 year fixed rate loan.
In this case, disposable income if renting is $34,300, and buying is $28,442. The difference is $5858 or $488 per month. When you consider the compounding appreciation of $18,000 per year, $1500 per month, ownership has a $12,000 (on paper) advantage in the first year.
The factors to consider now, have to do with relocation. If you believe you will be moving in the next 2 years, you'll need to factor in the costs to sell your home (9%), $30,330 at $337,000. In this situation, you'd need to subtract closing costs from sale price ($337,000-$30,300) or $306,700. In this scenario you would have a positive gain of $7,000 over the 2 years. Depending on the rental market, you may want to consider becoming a landlord and keep the house for investment. You would have recovered your initial down payment in the sale to use in your new location.
This case is intended to be informational only. It is not intended to be a guarantee of performance. There are many factors that can affect the value of any investment.