Buy vs. Rent: How Long Does it Take for a Home Purchase to Pay Off?

For 15 years, In&Out Magazine has been the definitive source of “Everything that’s going on” in and out of the community. We thank you, our readers, as well as the businesses that support the magazine through advertising, for that opportunity. But with little going on, and many businesses suspending or canceling their ads during the Covid-19 crisis, we are suspending publication of the magazine and web sites for the month of May. 


If you’re trying to decide whether to rent or buy a home, there are a slew of factors to consider, not least whether you qualify for a loan and have enough cash for a down payment. But if you thought it would take forever to make a home purchase the financially prudent choice, you’re off by a bunch of years.

In the current market, with home prices rising around 5 percent per year locally and on average across the country, it doesn’t take long for a home purchase to pay off.

“In the Phoenix metro, you’re better off buying the home if you plan on staying there for at least two years and six months,” said Zillow spokesperson Matt Kreamer. Nationwide, the figure is 1.96 years, according to a new Zillow analysis. That’s all assuming the future of the real estate market doesn’t change dramatically, of course. And it makes a lot of other assumptions that may not apply to your given situation or the specific house you might buy.

Here are the factors that went into the calculation:

A break-even point was calculated for up to 3,000 individual homes pulled randomly from each ZIP code, comparing each home’s estimated purchase price and rental cost. For purchases, it assumed:

  • A 20 percent down payment
  • Monthly payments on a 30-year fixed rate mortgage at the current interest rate for people with credit ratings between 680 and 740
  • Property taxes
  • Homeowner’s insurance
  • 3 percent purchase costs
  • 8 percent selling costs (because that’s how owners realize the gains)
  • Annual maintenance costs equal to 1 percent of the home’s value
  • For condos, 1.2 percent a year in HOA fees
  • Home appreciation forecasts
  • Federal tax deductions

For renting, the analysis assumed:

  • A deposit equal to one month’s rent
  • Rent payments
  • Renter’s insurance
  • 5 percent annual investment gains on money that would have been used as a down payment or gone towards other homeowner expenses the renter avoid.

Related:


 


Help Save Our Community
Small businesses are the lifeblood of our country and even more so this community. Supporting local businesses during this crisis can help keep our community economically viable. Please strongly consider supporting the businesses below, In&Out Magazine's display advertisers, as well as those in the Classifieds section of the magazine (see the full April 9 issue in PDF form). Many of these businesses have been part of the fabric of this community for two decades, not just serving our professional, service and retail needs but stepping up to support local charities, sports teams and so much more. Tip: If you know you’ll need to schedule a service, consider contacting a local business you trust and paying the standard fee for the deferred service. The links below go to their web sites.

Adult & Pediatric Allergy Associates • 602-242-4592
Anthem Senior Living • 602-909-9550
Appliance Pros • 502-501-5501
Business Network of Anthem • 623-455-9630
Carroll Law Firm • 623-551-9366
Century 21 Real Estate - Jeff Huff • 623-223-1221
Creative Home Enhancements • 623-551-5409
Daisy Dream Homes Real Estate • 623-879-3277
Daisy Mountain Dentistry • 623-551-5250
Desert Foothills Air Conditioning • 480-595-0938
Edward Jones • 623-551-0523
Element Dental Centers • 623-551-5555
Hand & Stone Massage • 623-551-6602
Kendallwood Design • 602-252-3844
Kodiak Roofing • 602-501-7717
Luv My PC • 480-703-6609
Merrill Gardens • 623-201-4881
North Valley Water Solutions • 623-551-0515
Preferred Business of Anthem • 623-551-0523 
Prickett Realty • 623-551-8111
ProSkill Services • 623-551-7473
RE/MAX Professionals - Mike Higgins • 623-640-7502
Rise Above Remodeling • 623-551-2013
Soft Water Plus • 623-551-7383
SonoranScapes Landscaping • 602-842-9948
State Farm Insurance - Justin Simons • 623-551-3700
Storage at Anthem • 623-226-8634
Sunset Cabinets • 623-687-6579
Thompson & McGinnis Attorneys at Law • 602-952-2666
Titan Tree Care • 623-444-8448
Titan Pest Control • 623-879-8700
Wyman Plumbing & Mechanical • 623-551-6688

For more local businesses, see In&Out Magazine Classifed Ads >>>  
 
Staff Writers
North Phoenix News staff writers and editors often work together to produce articles like this one.

Staff Writers

North Phoenix News staff writers and editors often work together to produce articles like this one.

staffwriters has 375 posts and counting.See all posts by staffwriters