You’ve heard all the reasons that people want to stop renting. “I don’t want to waste my money.” Heck, you may have even said them yourself. Many of my friends are reaching that point in their lives where they’re considering buying a home. However it’s unfortunate that so many choose to buy over rent, especially in this expensive market, because many well-intentioned people are buying homes that are actually damaging their finances.
Despite the fact that many people disagree with me that the real estate market is going to deflate, there is a rule of thumb that I use that should give you an idea about how much you should spend on a home even if the market is in a slump.
For every $100 you spend in rent a month, you’d be better off buying up to $12,500 in property instead.
For example, I live in Northern New Jersey, and currently pay $1,000/mn for my 1 bedroom apartment. I would be better of financially if I were to buy a condo that cost up to $125,000. The only problem is that where I live, there’s nothing habitable that I can buy for under $125,000, and if I spend much more than that, it’ll actually cost me more money to buy than rent!!! Unfortunately this is a problem shared by my friends in major cities around the country.
Okay, you’re skeptical. I know it and I don’t blame you. So I’m going to prove to you right now, why my rule of thumb works.
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