Interactive: Is It Better To Rent or Own?

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Apr 10, 2016
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Mortgages, Activity, Research, Purchase Decisions, Current Events

Screen Shot 2016-04-10 at 10.18.26 PM

 

Great interactive tool from NY Times to aid in one of the most important decisions that individuals make in their lifetimes. This screenshot demonstrates how the user can adjust a set of variables (home price, time in house, mortgage details, growth in home prices and rental costs, taxes, closing costs and fees and maintenance costs) and immediately see its impact. Yes, that seems like a lot of variables, but you can see which ones really influence the outcome based on the shape of the graph. For example, the home price graph shown above is quite steep as the higher the home price, the higher the equivalent rent. The outcomes is expressed as “If you can rent a similar home for less than…then renting is better.”

Here is an example that your students can use to see how the tool works:

  • Bill is undecided about whether or not to purchase a home. He works at a local financial services firm and plans to stay in the area for at least the next five years. The median home price in Columbus, Ohio where he lives is $110,000 (according to Zillow). He has the $22,000 available for a down payment and wondering if now is a good time to buy. He uses all the variables provided by the interactive tool except his utility bills are expected to run about $300/month and he expects his maintenance costs will run about 2% per year (or $2,200/year).
    • Should he buy or rent?  Here is a screenshot of what the tool returned:

Screen Shot 2016-04-10 at 10.32.10 PM

So, now the question is whether he can find a comparable rental for $811/month.  To answer that question, I turned to rentjungle.com and pulled down this information about the rental market:

Screen Shot 2016-04-10 at 10.35.13 PM

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Since on average a two bedroom apartment rents for $904, I am guessing that one can’t find a comparable HOUSE to rent for $811, which would seem to tip the scales in favor of buying a home vs. renting. You might also ask the student to consider what other factors are important in making this decision:

  • Security of current job
  • Economic outlook for region
  • Risk tolerance of individual
  • And others

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Looking for other great interactive tools to engage your students? Check out the NGPF Interactive Library!

 

 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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