The 5% rule in real estate is a rational approach to figuring out if you are better off renting vs. buying a home at a particular time. Here is a simple explanation of the five percent rule. Multiply the value of the home, for example, the home is priced at $450,000, take that number, $450,000, times 5%. That number in my example would be $22,500. Lastly divide that number, $22,500 by 12. The number that you will have for this example would be $1,875. Consider this the break even point. If the monthly rent on a comparable home that you would want to live in is below that number ($1,875 in this example) it makes sense to continue to rent. If the monthly rent is higher than this number it makes sense to buy.
To Rent Or To Buy?
The five percent rule takes the emotion out of the decision of rent vs. buy and gives you hard numbers to think about. The cost of renting a home is simple. It is the amount that you pay in rent. The cost of owning a home is more complicated. You have to consider the maintenance costs the property taxes and these costs are assumed in this five percent rule. Moreover, they are using the number of one percent of the value of the home goes for taxes and maintenance. With this you arrive at a rational decision to buy or rent.
This formula does not take into account if you are in a financial position to buy a home. Moreover, it also does not take into account additional benefits to buying a home. You can deduct some or all of the interest that you pay on your mortgage from your taxes. That alone will push the the math to favor owning over renting. Moreover, this formula also does not take into account the wealth that you will build through appreciation of your asset, your home.
The 5% Rule In Real Estate: We Are Here If You Need Help
The decision about whether you should continue to rent or buy a home cannot be made completely based on the The 5% Rule In Real Estate nor can it be a completely emotional decision. Explore what is best for you. Additionally, ask professionals that you trust questions to get the answers that you need to make an informed decision. Contact us for more assistance.