Scenario 3

Chris and Jane had a job in Raleigh but knew that they would be moving to a new city every 6 years. They were trying to decide whether to buy a house or rent a house for the next 6 years. If they bought a house, they knew they could afford a $400,000 home, after a down payment of $80,000 and closing costs of 4% of the cost of the house. The $320,000 would be at an interest rate of 6%, but they would also need to add in $5,000 a year of property taxes, and $1,200 a year for homeowners insurance. They estimate that monthly maintenance (air conditioner, lawn service, light bulbs, etc.) would cost $400 a month. They would also need to budget for an additional $100 a month in utilities that are a direct result of home ownership. They anticipate that the house will appreciate by 10% in 6 years but they will have to pay real estate brokers fees and other costs of sale equal to 7% of the sale price.

If they rent a house, they knew they could find a great rental property for $2,400 a month. They would need to pay a security deposit of $3,000. The rental price will increase by 3% per year over the 6 years. They would also need renters insurance of $125 a month. All other maintenance costs are covered by landlord. All other utilities are the same whether they buy or rent.

Should Chris and Jane buy or rent? Explain your answer?