If you’re planning to move in retirement, should you rent or buy your new home? Similarly, what should young people do when they get married and start a family?
That depends on how long you plan to stay in the house. Unless you’re certain you’ll be in the house for several years, you might not want to buy because the transaction costs could exceed any short-term appreciation.
Besides the length of time that you intend to remain, local market conditions also will affect the rent-or-buy decision. Therefore, if you’re in the market for a house or an apartment you should compare the purchase price of a home you might buy with the monthly rent you’d pay for comparable living space.
In general, if the purchase price is 100 to 120 times the monthly rental, buying may be a good deal. However, if the purchase price is 250-350 times the monthly rent, you’re probably better off renting.
Suppose, for example, rental prices run $1,000 per month in the area where you intend to live. In such a market, buying a house for $120,000 or less may make sense but paying $250,000 and up for a house might be daunting.
