Buying is cheaper than renting IF the following apply:
(1) You assume that your exit price will be greater than your entry price (whether that’s 5 years or 25 years down the road); and
(2) The after-tax cash outlay related to owning is at or below the cost of renting the same housing; and
(3) Rents generally increase – whether 1%/year or 5%/year – over the time you own the property; and
(4) Transaction costs don’t completely offset 1-3 above.
If over the term of your “investment” in the home, prices are generally increasing (however modestly), rents are generally increasing (however modestly), your cash outlay is fixed at or below a similar rental, and transaction costs don’t eat up the economics… buying is better than renting from an economic standpoint.
I’m sure I’m missing a few nuances, but that’s pretty much it in a nutshell.
The trick is getting a price that engenders a high probability of 1-4 being true over time.
Actually, there was a long debate on this topic a couple of years back on this site and the range of opinions, as I recall, was that a “rental premium” of 10%-50% was justified, depending on the person. All agreed that 200%+ – as we saw during the crazy times – was not.
