A simple equation could help you decide whether to buy or rent a home


Buy or rent?


Real estate investor Grant Cardone, who has been in the field for 25 years, writes on Entrepreneur that buying a home "is for suckers" because monthly payments make it a liability, not an investment.

On Quora, MIT Economist Erik Brynjolfsson explains that buying is better than renting, because you get dividends in the form of rent you pay to yourself.

On the Altucher Confidential, James Altucher writes that between the taxes, closing costs, constant maintenance, and demand on your cash, he'll never own a home again.

So really, it depends who you ask.


The answer won't be the same for everyone. Perhaps the intangible feeling of ownership is priceless to you; perhaps you like the freedom of knowing you can up and leave your rented home whenever you want.

If you are making the decision for yourself, Tara Siegel Bernard of the New York Times highlights an equation from financial adviser William Bernstein, author of "If You Can: How Millennials Can Get Rich Slowly" to use as a tool in your arsenal.

She writes:

Never pay more than 15 years' fair rental value for any home, or 180 months of rent. Why 15 years? By his calculations, someone paying more than 180 months of rent might potentially do better by investing in the market, after considering the costs of owning.

So if an apartment would rent for $4,000 a month, that means you shouldn't pay more than $720,000 ($4,000 x 180) for an equivalent property.


That's simply [cost of market value rent] x 180 = [maximum purchase price].

If you're not sure about the rental price of your would-be home, real estate listings site Zillow usually provides a sales and rental estimate ("Zestimate") for listed properties. To verify accuracy, look up the estimates for surrounding properties as well.

Punching a few numbers into your phone's calculator may not make up your mind for you, but at least it's somewhere to start.

NOW WATCH: This mind-melting thought experiment of Einstein's reveals how to manipulate time