Are your clients asking tough questions about the decision to buy or rent? Benjamin Felix of PWL Capital has produced this high quality explainer video on something he calls the “5% Rule.” It looks at the 5% unrecoverable costs for owning and compares that with renting. It works on these assumptions:
Non-recoverable costs for home ownership are the baseline for rent/buy comparisons
Assume 1% of the home’s value for taxes and another 1% for annual maintenance
Then add the current mortgage rate as a percent (say, 5% interest)
The “5%” part of the rule is variable depending on rents and interest
There are more factors in the equation that he explains very well in the video that provide a good foundation for decision-making from an accountant’s perspective.