It’s a question that many people ponder. I speak to people every week (nearly every day) who have been renting in Austin, and are exploring their options when they get a lease renewal notice that their rent is going up. I usually ask if buying is an option, and most people say no.
But often, buying can lead to lower monthly costs than renting. Especially with interests STILL hovering near all time lows, it is worth considering whether buying is a good idea.
Your monthly payment isn’t the only consideration, however. One very good tool I have seen to help you the thought process is the New York Times Rent vs Buy Calulator.
If you decide to give it a try, I suggest a couple of tweaks to model the Austin purchase vs rental market correctly:
Property Tax Rate: The calculator assumes a fairly low rate of 1.35%. Since Texas has much higher property tax rates than most states, you’ll need to adjust that rate. If you aren’t sure, fill in a value of 3% to be conservative. (If you are looking at an actual MLS listing, it might tell you the tax rate. If so feel free to use that value.)
Costs of Selling home: I’d suggest 8% to be conservative. A typical commission for a home seller is 6%, but there are other closing costs as well…. It likely won’t be quite an extra 2%, but again, I like conservative estimates when using tools like this.
I have played with the tool a bit, and in general, in the Austin area market if you plan to stay in your new home for more than a few years, the tool predicts that you will come out ahead by buying. But if you plan to move in a year or two, you’re better off renting.
