Rent vs buy

Training 725 minutesrent vs buy

You are 31, work at a pharmacy and earn $6,000 a month before tax. Your apartment rent is $1,300. Your parents insist renting is throwing money away.

Training goal: Decide with numbers, not habit

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Situation

1. A similar home sells for $250,000. Your parents: "You pay a landlord when you could pay yourself."

Rent is wasted, buy right away
Compare using the 5% rule
Rent forever, owning is a trap

2. There is a chance you move to another city for work in 2 years.

Buy now, sell later
Buy and rent it out after moving
Keep renting until plans are clear

3. The move is off and you are staying put. You have $65,000 saved. How do you use it?

20% down, the rest for fees and a cushion
All $65,000 as the down payment
A $400,000 home with the minimum down

4. The bank will approve a payment up to $2,400 a month. You earn $6,000 before tax.

Take the max, they are offering it
Keep housing under 28-30% of income
Take $2,000, I will cut elsewhere

What you will learn

5% rule: home price × 5% / 12, compared with rent.
Buying usually pays off after 5+ years, renting buys flexibility.
Housing under 28-30% of income, plus a repair fund.

Your real-life step

Find the price of a home like yours, multiply by 5% and divide by 12. Compare it with your rent.

Questions and answers

Is it better to rent or buy a house?

It depends on prices, rates and how long you stay. Buying usually wins if you stay 5+ years and rent costs more than 5% of the home price a year.

What is the 5% rule for renting vs buying?

An owner’s unrecoverable costs: about 1% property tax, 1% maintenance and 3% cost of capital. If yearly rent is under 5% of the price, renting is cheaper.

How much of my income should go to housing?

A common guideline: no more than 28-30% of gross income on housing, and no more than 36% on all debts combined.

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Numbers are illustrative. A game, not financial advice.