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Does it cost more to Rent or Buy in Austin, TX?

rent vs buy in austin

The rent vs buy debate is common in Austin, TX. With almost 52% of Austin residents renting, it’s easy to see why. The truth is, there’s a fair argument for both renting and buying, and the answer varies depending on how long you plan to do either. 

Let’s take a look at a cost breakdown for rent vs buy over 5 years for an Austinite. We’re going to assume ‘Robert Resident’ wants to live in a modest 2 bedroom apartment if renting, or a 3 bedroom single family home if buying.

First, let’s keep it simple and just look at the dollar for dollar costs over 5 years. The average rent increase in Austin is 4% each year, which is what the ‘rent payment’ column is based on. For the ‘mortgage payment’ column, let’s assume Robert buys a $250,000 home and puts 5% as a down payment. His all-in monthly payment would be around $1913 every month on a 30-year mortgage.

As you can see, for years 1-4, Robert does save some money by renting (though the savings is negligible by year 4). On years 5 – 30 however, Robert saves more money by owning his home because he avoids any rent increases.

Next let’s take a look at all the other costs involved in a home purchase, along with tax and equity savings over 5 years.

After looking at this chart, you’ll see that over 5 years, though the costs aren’t too far off, they do slightly favor the renter up until the last two rows, time and equity. Let’s take a look at the two biggest factors that tilt the scales towards buying.

1. Equity buildup. Austin has been appreciating an average of 7% over the last 5 years. I used a 5% appreciation number for this example to more closely reflect the national average in case of market changes. After 5 years of owning his home, Robert will have ‘earned’ roughly $62,000, while he’ll have $0 if he chooses to rent. This is one of the biggest upsides to homeownership.

2. PMI Dropoff. If Robert chooses to buy, he’s only planning to put 5% as a down payment. The downside to this is he’ll carry a fee called ‘private mortgage insurance (PMI)’ for the first few years of his loan. This fee is factored into the $1913 monthly payment. Once Robert reaches 20% equity in his home, the PMI charge will fall off and his monthly payment will decrease by about $100 a month for the rest of the 30 years. in this example, Robert already has over 20% equity in his home by year 5. The remaining years of his mortgage will have a payment closer to $1,800, which is only $100 more per month than the initial rent payment.

The Bottom Line
Renting or buying is a personal decision and there are certainly other factors that play into it besides money. If you’re planning to stay in the Austin area for a while and are still renting, let’s grab a coffee and see if it makes sense for you to continue to rent, or think about taking the leap to home ownership.

I’d love to be your resource for all things real estate, so please reach out any time!

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May 17, 2019