Buy or Rent – The Homebuyer Question

Many renters, especially those who have never owned a home, are struggling with the “buy versus rent” decision. If you leave it just to an investment numbers decision, some online calculators can help you. However, for a home as your principal residence, other factors can be more important in the decision process.

The Basic Numbers

Sure, numbers are important. You should research your local real estate market to determine the price range of homes suitable for your needs and if they are affordable for your budget. Using an online calculator, you can determine your approximate payment with taxes and insurance included. Then you can compare that to your current rent or rents for homes comparable to the home you would like to buy.

Other Costs and Tax Breaks

The mortgage payment, property taxes, and insurance are not the only costs of homeownership. Repairs and maintenance, especially on older homes, are costs you must consider and include in future budgets. The mortgage interest deduction is alluring, but there are many homeowners who, considering the standard deduction amounts, will not have enough including mortgage interest to exceed the standard deduction. In that case, there is no income tax advantage annually.

The Breakeven Point of Homeownership

There are estimates of the time a home must be owned before the costs of resale are made up in the sale for a breakeven point. They range normally between five and eight years. They vary due to factors including the local market area, financial investment of the owners in the home (down payment, etc.), and the urgency involved in the sale.

Whatever the approximate breakeven point, the potential homebuyers should be thinking about some lifestyle factors as well. How established are they in their jobs, what are the possibilities of forced transfer, or would career advancement lure them to relocate out of the area? If a minimum to no down payment was involved in the purchase, selling earlier than anticipated may not be as financially damaging. Of course, the flip side is the higher monthly mortgage payments that go with a minimal down payment. The bottom line of breakeven on homeownership costs is that the buyer(s) should put some thought into how long they anticipate owning the home.

Homeowner to Rental Investor Conversion

One deciding factor in the anticipated time of ownership is upward career mobility and possibly growth in family size. Particularly when the homeowner is upwardly mobile in their career and anticipates advancement and salary increases, they may find that they should have held off in buying because a move is in the works.

One approach is to hold off on selling the home if a move is required for advancement. Converting it to a rental property offers several advantages. First, a sale below the breakeven point is avoided. After that, benefits of rental investing are in the mix, including:

  • Multiple tax advantages:
  1. Deductibility of many expenses, from mortgage interest to repairs and maintenance.
  2. Annual depreciation deduction that does not involve out-of-pocket cash.
  • Continued value appreciation during ownership.
  • Rental income that can offset more than just the mortgage payment.

Before making a rent versus buy decision, the homebuyer(s) should consider all of these factors.


If you’re ready to buy or rent, make sure to give us a call at 210-257-0642 or to check out our website, click here!