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

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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.



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.

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