Rent versus Buy

When is Renting a Home Less Expensive than Buying?

[By Staff Writers]

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It usually makes sense to rent a home – rather than purchase one – when the period of time you will stay in the home is short or undetermined.

Why? The reason for this is the high cost of purchasing and selling a home. 

When a physician purchases a home, he or she must pay an amount varying from the total price in cash to at least 0-3% down; and hopefully up to the traditional 20% or beyond to remove PMI – especially after the recent mortgage industry meltdown with today’s tight credit markets because of the sub-prime mortgage fiasco.

Recall, that about 13% of first mortgages that originated in 2005 and 2006 had down payments of less than 10%, according to the Mortgage Bankers Association. An additional 1% of the mortgages surpassed the value of the property.

And, if the home is purchased for cash, a majority of the expense of purchasing and selling comes in the selling via commissions and excise taxes.

Sound too much like a Pollyanna? Well, one must understand that mortgage securities are now so complex that it’s often hard to know who actually owns the underling property. If the doctor finances a home, he or she has to pay closing costs on the mortgage as well as the back-end commissions and excise taxes.  

So, it’s obvious that owning a home for a short period of time can be very costly unless the home experiences a dramatic rise in appraised value during the (short) ownership period. And, it surely did in some areas, in the past.  But, because each situation will vary, it is important to build a spreadsheet model that encompasses all of the important information when analyzing the situation. 

The Contemporary Scene for Homes

Currently, more doctors should probably concentrate on debt reduction and establishing their careers – and rent their homes. Of course, this strategy does drive up rental fees in the short term. But, home “flipping” did the same thing to prices and resulted in our current mortgage mess. 

Current Theme for Apartments 

Apartment asking rents posted their biggest increase of 2007 in the third quarter, jumping 4.2% from a year ago, to an average of $1,015 per unit, according to industry sources. And vacancy, which had edged up slightly earlier in the year because of apartment construction, tightened up in the last quarter to an average of 5.6% from 5.7% the same time a year ago. Thus, the outlook is rosy for landlords in 2008, but murky for homeowners.

Row Homes


Hopefully in the future, home prices may shrink – and physician economic stability increase – to the point that home ownership becomes the delight it should be; rather than the burden it has become for many doctors. 

Do you rent or own? How has your strategy worked for you? Do you view your home as a place to live – or an investment? Why, or why not?


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FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

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One Response

  1. Bye-Bye PMI

    Homeowner tax breaks expire in 2014.

    So, it’s time to say goodbye to the deduction for private-mortgage-insurance premiums.



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