Wondering if it's better to rent or buy a home? Consider these factors before sold on owning

Q:  My adult daughter keeps renting an apartment in Atlanta — I keep telling her to buy a home as she is wasting money renting. Am I right?

A:  Maybe, but maybe not! Let’s run some numbers to see.

I obtained some more information from you that helps. The apartment your daughter rents is in a condo building, and an equivalent condo would sell for $650,000. She is paying rent of $2100/month. Let’s review the likely costs of ownership.

First is the cost of money, i.e., what do you have to pay for the property? If you use your own money, then you lose the income it could produce by being invested elsewhere. If you borrow, you pay the prevailing interest rate. If you put some money down, you pay both ways.

Let’s be conservative and say the “cost” of the money is 6% per year.

Next, add certain costs such as property taxes and insurance — figure 2-3% of the value of the property per year. Then, add expected maintenance and repairs — figure a new roof, water heaters, and A/C/heat every so many years — we’ll add another percent for that. If she buys the condo or many other properties, add in monthly HOA fees. Again, to be conservative, we’ll ignore costs that are likely but hard to quantify. Here, I’d suggest unexpected repairs, desired remodeling, appliance replacements and “fixing up” an owned property doing things you would not do to a rental property.

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Adding up the certain costs above, we are at a cost of 9-10% of the value of the property per year. In your daughter’s case, this would be between $58,500 and $65,000 per year. Her rent is $25,200 a year. I’d say she is getting a deal!

All of these arguments ignore that the price of an owned home can go up but we also know that home prices fluctuate and can indeed drop at times. We have also not considered the transaction costs of buying a home (including Realtor costs, this can easily be 8% of the cost of the home split between buyer and seller).

Finally, understand that renting gives your daughter the easy ability to move. Maybe to move to a different part of town, or perhaps to move to a different location entirely.

Then consider that many rental properties offer features that will save money such as an onsite gym and pool. And how nice to be able to just call the landlord when something breaks! All of this offers significant value.

So, I hope I have put your mind at ease about your daughter’s choice to rent. It is not always so clear to figure out, but we do not often see a strong argument to own a home on just a financial basis.

Steven Podnos is a fee-only financial planner in Central Florida. He can be reached at Steven@wealthcarellc.com and at www.WealthCareLLC.com.

This article originally appeared on Florida Today: Wondering if it's better to rent or buy a home? Consider these factors before sold on owning