Rent vs Buy (Source: SFgate.com)

Rent vs Buy (Source: SFgate.com)

With the shortage of inventory of homes continuing well into the Summer, some of our buyers are starting to seriously consider rent as option to ride this market out. Their frustration is also fueled by the fact that 35% of the homes sold in Silicon Valley in the past 90 days were all cash transactions with home fetching 97% of List price.

But the decision to rent vs buy can’t be taken lightly without doing some math about the financial implication of these two alternatives.   We have previously written about the benefit of buying vs renting that you can read.  However, we want to introduce our readers to Trulia’s Rent Vs Buy Calculator which offers you an option to input:

  • Target Monthly Rent
  • Target Home Price
  • Length of Stay
  • Income Tax Rate
  • Mortgage Rate

Once you enter the above information the page displays the restuls of computations for both options.   In our case, we entered the following data for San Francisco, CA :

  • Target Monthly Rent:  $3,350
  • Target Home Price:    $1,000,000
  • Length of Stay:             $7 years
  • Income Tax Rate:        28%
  • Mortgage Rate:            4.21%

To our surprise, the computations shows that Buying is 4% cheaper than renting!   You can play with this calculator and get some interesting results.  For examples, when renting a home in San Francisco for $3,500 has the same monthly cost of owning a $1.1M home.

But unlike other Metro Areas around the US where buying is a no brainier, the high cost of rent and huge increases in home prices have made the choice between buying and renting an agonizing one in Silicon Valley.

What are your thought about buying vs renting?