Give Gifts Top Banner

Home » Issues » Making It Home » Is Owning or Renting Better For You?

Get a FREE Issue. Yes! I want to try YES! Magazine

Nonprofit. Independent. Subscriber-supported. DONATE. How you can support our work.

YES! by Email
Join over 78,000 others already signed up for FREE YES! news.

The YES! ChicoBag(R). Full-size tote that fits in your pocket!


Is Owning or Renting Better For You?

How to know when it's smart to rent.
Document Actions

For Rent SignThere will always be a substantial segment of the population for whom owning a home does not make sense. This is for the simple reason that they are not secure in their job and/or family situation and therefore cannot count on being able to stay in the same home for a significant period of time.

This is important because the transactions costs associated with buying and selling a home are substantial. Realtors typically charge a 6 percent commission on the sale price. The points charged for taking out a mortgage are typically in the 1 to 3 percent range. Many states have transfer taxes that could reach as high as 3 percent. In addition, when buying a home it is usually necessary to pay for an appraisal, a title search, a lawyer at closing, a home inspection, a surveyor, and other odds and ends.

In total, the costs associated with buying and selling a home will typically be around 10 percent of the price. In many areas they could be considerably more. This is a huge cost if a person cannot spread it over a long period of home ownership. 

Interior Design photo by Corbyn Hightower
Renting With Style

How to own it—even when you don't.

To take a simple example, suppose someone pays $160,000 for a house, roughly the median house price. If their transactions costs from buying and selling the home are 10 percent of the purchase price, then this comes to $16,000. If they live in the house for 10 years, this cost effectively adds $133 a month to the price of living in this house.

However if this person only lives in the home for two years, then the transactions costs effectively add $670 a month to the cost of living in the house. The added cost in this case is almost equal to what it would typically cost to rent a house with a $160,000 price tag. The basic story is that if someone does not reasonably expect to be in the same house for at least five years, they should probably be renting. 

Dean Baker wrote this article for Making it Home, the Summer 2012 issue of YES! Magazine. Dean is co-director of the Center for Economic and Policy Research in Washington, DC. He writes a weekly column for the Guardian Unlimited, the Huffington Post, TruthOut, and his blog, Beat the Press, features commentary on economic reporting.


Email Signup
Making It Home
Comment on this article

How to add a commentCommenting Policy

comments powered by Disqus

You won’t see any commercial ads in YES!, in print or on this website.
That means, we rely on support from our readers.

||   SUBSCRIBE    ||   GIVE A GIFT   ||   DONATE   ||
Independent. Nonprofit. Subscriber-supported.

Issue Footer

Personal tools