Continue to rent or buy?

Comparing the cost of buying a San Francisco 2-bedroom condo at the current average sales price (for the first 4 months of 2012) of $795,000 – adjusting for tax deductions and principal pay-down of the mortgage – with the cost of renting an SF 2-bedroom apartment at the current average asking rent of $3575/month (per Rentbits.com). Assumptions: 20% down-payment; 30-year fixed-rate loan at an APR of 4.25%; closing costs of $8838; property taxes at current rate; ongoing insurance and maintenance costs of $465/month; inflation rate of 2%; annual home appreciation rate of 5% (which I believe is conservative at the present); combined income tax rate of 25%.

This is based on your home's estimated equity minus a 5.00% sales commission paid to brokers or real estate agents when you sell your home. It also assumes your home will appreciate at 5.00% per year and you have an income tax rate of 25.00%. If you cannot remain in your home for at least 1.2 years you should consider continuing to rent.

I calculated your breakeven point by examining how long it would take to create enough equity in your home to exceed the value of investing your cash on hand. I also accounted for differences in your monthly rent and house payments. If your rent payment is less than your net house payment, I added that monthly savings to your investment. If your house payment is less than your rent payment I subtracted that amount from your investment. You may notice that on the schedule at the bottom of this report the investment value can be reported as negative. This happens if your house payment is significantly lower than your rent payment. It illustrates that if you continue to rent the extra cost of renting would, in effect, use up your cash on hand.

Perform other Rent vs. Buy analyses using your own financial circumstances and projections at http://www.paragon-re.com/Calculators/RentvsBuy.aspx

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. I cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. I encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.