Rent First or Buy First? Two Couples, One Year
They met in a language class and settled in the same town in the same month.
Picture two couples, Lois and Herb, and Anita and Gordon, all in their late sixties. They met in a language class and settled in the same town in the same month. Each couple wanted a one-bedroom apartment near the market.
Lois and Herb rented. Their lease was US$900 a month for 12 months. Lois kept a notebook beside the kettle. She wrote down which street was loud on Fridays and how hot the afternoons got in August.
Anita and Gordon bought. They fell for a sunny apartment on the fourth floor with no elevator, priced at US$200,000 (an illustration). They wanted to unpack for good. That is a good reason.
For the table, imagine that both couples chose the same apartment, one that rents for US$900 and sells for US$200,000. Then the only difference is renting against buying. The first table is the first year if both stay the whole year.
| First year, same apartment | Rent | Buy |
|---|---|---|
| Paid at the start | Deposit of 1 to 2 months: US$900 to US$1,800, returned later | Buyer costs of 5% to 12%: US$10,000 to US$24,000, not returned (US$16,000 at 8%) |
| Rent for the year | 12 months at US$900 = US$10,800 | None |
| Property tax and building fees | None | About US$2,700 (an assumption, 1.35% of the price) |
| Money tied up in the apartment, at an assumed 4% | None | US$8,000 |
| Cost of the first year | US$10,800 | About US$26,700 (US$20,700 to US$34,700) |
| Cost of changing your mind | A notice period, often one to three months | Selling costs of several percent (6% is US$12,000), and time to find a buyer |
The buyer costs alone, US$10,000 at the low end, are close to a full year of rent. The high end is more than two years. Repairs are left out of the buy column and would add to it. Utilities are left out of both, since both couples pay them.
In month eight Gordon's knee began to swell on the stairs. Anita did the arithmetic at the kitchen table. They would pay buyer costs going in and selling costs going out, for an apartment they had lived in for eight months. They decided to sell and rent for a while.
| If they leave after eight months | Rent | Buy |
|---|---|---|
| Rent, 8 months at US$900 | US$7,200 | None |
| Buyer costs (8%) | None | US$16,000 |
| Tax and fees, and money tied up, 8 months | None | About US$7,100 |
| Selling costs (6%, selling at the price they paid) | None | US$12,000 |
| Cost of eight months | US$7,200 | About US$35,100 |
Herb and Lois were still renting. Herb said, "A year of rent bought us the answer to which street." After twelve months they bought a ground-floor apartment two streets from the market, in the same town, with Lois's notebook open on the counter.
Anita said later, "I would gladly have paid the US$900 a month to learn about the stairs."
You could…
- Ask a local lawyer to list every buyer cost for an apartment at the price you like.
- Rent for a year in the neighborhood you would buy in, and keep a notebook.
- Write down the stairs, the noise and the summer heat before you make an offer.
- Ask an accountant what the purchase would mean for your taxes at home.
If you rented first or bought first, what did the first year teach you? Add your first-year lesson in the comments. A reader deciding the same thing this week could learn from it.
Figures are estimates for planning, based on public data.
Sources: published buyer-cost guides from lawyers and property-information sites in several countries; the US$200,000 price, the US$900 rent, the tax and fees, and the 4% are illustrations.
Tell us in the comments