Renting an apartment, as opposed to buying an apartment, has been the preferred option for most people since the recession hit. But it may be time now to reassess your options. Is renting an apartment still better or cheaper than buying an apartment?
Even before the 2008 real estate meltdown, many of us who were renting an apartment asked this question. The only correct answer is, well, it depends on various factors. Whether renting an apartment is better than buying hinges on a few variables, particularly how fast selling prices and rents rise and how long you stay in your apartment.
The New York Times “Your Money” section provides a calculator to solve this equation. Compare the costs of buying and renting an apartment using this simple calculator. Click the advanced settings button to modify inputs such as your rate of return on investments, condominium fees, maintenance costs, and your tax bracket. Renting an apartment vs. buying an apartment is really just a mathematical problem that can be solved.
The buying vs. renting calculator maintains a running tally of the basic expenses of owning and renting an apartment. It also allows for something called “lost opportunity costs” — for example, the return you could have earned by investing your money rather than spending it on a down payment. The calculator takes for granted that the profit you would have realized via your investments would be taxed as long-term capital gains, so it makes all the proper adjustments. The calculator tabulates lost opportunity costs for each part of the buying and renting scenarios.
The New York Times scored a winner with this wonderful, eye-opening tool and we recommend it highly. Using it, I discovered that renting an apartment is cheaper in our situation — but only up to 3 years. After that time, it’s cheaper for us to buy a place. Personally, I believe that renting an apartment has advantages that can’t be measured using the calculator — like not worrying about maintenance headaches. Obviously, there are disadvantages to renting an apartment, too, so perhaps it evens out.
P. S. If you’re renting an apartment, don’t forget the renters insurance!
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