When buying makes more sense than renting—or vice versa

Rents are high in Denver, but so are home prices. Rent proponents point to escalating prices and argue that it’s cheaper to rent in Denver than to own your home. 

People in the homeownership-is-smarter camp view rent as throwing your money away, something no one advocates. 

While there are many reasons to own your own home—and reasons not to—the primary consideration is typically financial. 

Let’s look at the numbers.

The person who rents an 850-sq ft apartment in Denver is paying, on average, $1,600 in rent every month. The median monthly rent for a single-family home is $2,100. 

The average home purchase price in Denver is approximately $422,000. The buyer who puts 20% down and obtains a mortgage at 4% realizes a monthly payment, including taxes and insurance, of $1,895—more than $200 cheaper per month than renting. Case closed. Buying is cheaper than renting.

However, 20% down is unrealistic for a lot of buyers, particularly people getting into the market for the first time. 

Buyers who put down 5% on a purchase price of $422,000 assume a mortgage payment of $2,434, which also includes mortgage insurance and a higher interest rate given they put less money down. At face value, renting looks less expensive than buying. 

But hold on… there’s more to the story. 

1. Rent prices in Denver increase on average 6% year over year. The $2,100 median rent becomes $2,226 next year, then $2,350 and, by year three, $2,501. Meanwhile the monthly mortgage on a purchased home with 5% down remains at $2,434. Once the mortgage insurance falls off, that payment goes DOWN.

2. In five years, the homeowner who’s making a monthly payment of $2,434 will have gained $58,346 in equity by reducing their principle, while the renter’s security deposit may or may not be returned.

3.  Assuming Denver’s 30-year historic average of 6% annual appreciation on home values, the homeowner gains additional $142,732 in appreciated value in five years. The renter, meanwhile, is paying $700 more per month—and hasn’t accrued one cent of additional value. 

Ready to contemplate buying and building value rather than continuing to pay rent, which is money you’ll never see again? We’re here to help you weigh the factors and arrive at a decision that works for you.