Cheapest Place to Live

There's always a debate as to what is the cheapest place to live: a rental property or owning a home. Each has its own pros and cons that need to be carefully considered based on your current situation and future aspirations.

Practice cheap living wherever you live.

The cheapest place to live between renting and buying depends on several factors. These factors are not only the cash it costs you, but potential future costs and psychological costs. The choice is not only financial, but one of personal preferences, too.

Buying has been touted as the ultimate investment for decades. However, that may not be true for everyone, everywhere. Loss of jobs in an area can cause home value to depreciate in some areas. Even if your home does not depreciate, that is not to say the money you invested in the home would not have grown larger and faster had it been invested wisely somewhere else.

Another disadvantage of buying a home is that even once you pay off the home, you will continue to pay property taxes on the home, which usually go up each year. Additional expenses for a home include high up-front costs, such as down payment, or mortgage insurance costs if you do not have enough for a down payment. Maintenance costs can also add up each year, depending on renovations, upgrades and breakdowns of various appliances and fixtures. Home energy expenses, such as heating and cooling, are often higher, too.

Generally, buying a home does provide you with an asset you can sell, hopefully for more than what you paid for and put into it. It gives you shelter and property that you not only own, but also can alter however you choose. Unless you go into foreclosure, there is no possibility of eviction or rent increases. The peace of mind that owning a home provides is often a weighty one with many homeowners. Some homeowners may even qualify for income tax breaks (see a professional accountant for more information).

Though renting has gotten a bad reputation in recent years, it can be a smart choice for certain people. If you have a mobile lifestyle and do not want to stay in one place for more than five years, renting may make more sense, depending on real estate market trends in your area. You can often leave with just a few months' notice—no need to worry about selling a house or paying dual rent/mortgage or dual mortgages. Someone else will pay to do the repairs and maintenance for you, leaving you little additional out-of-pocket expense beyond rent. In many areas of the country, you can often rent a nicer and larger place to live than you can purchase for the same monthly payment.

However, renting does come with some uncertainty. Rent rates often increase yearly, and the landlord can change the lease agreement at that time, too. You don't have as much upfront costs, but you leave with nothing except possibility of a returned security deposit. Also, sometimes lazy or unscrupulous landlords do not hold up their end of the maintenance. Finally, many rental agreements have clauses that prohibit pets, painting, waterbeds or other alterations in the place that will make it feel like it truly is your home, versus just a place to live for a while.

Sometimes renting is espoused as the best way to go, because the additional money spent on a mortgage can be invested at a higher rate. While this can be true in some situations, not everyone will take the saved money and invest it wisely, nor are returns guaranteed.

Because the situation in renting versus buying can vary greatly between Des Moines, Iowa, and Los Angeles, California, or New York City and Austin, Texas, a calculator can be an extremely helpful tool when it comes to figuring out whether renting or buying is right for your personal finances.

Remember to adjust the calculator tools for appreciation, interest, tax rate and other variables appropriate to your area of the country to get the most accurate results:

• Ginnie Mae offers an easy calculator that figures out your average monthly payment over time for both buying and renting and your total payments over a period of time for buying and renting. It ends with the final financial figure next to the option that saves you the most money (buying or renting) based on the figures you typed into the calculator.
• The New York Times offers a nice visual graph that will show whether buying or renting makes more sense in your situation. Adjust the sliding appreciation and deprecation bars to find out how long it will take for buying a home to be better in your given situation. A summary for both options is also given.
• Freddie Mac offers a rent vs. buy calculator that includes not only your taxes, interest and appreciation but also your upfront costs, property insurance, maintenance and selling costs. The inclusion of this information can create slightly different results, especially if everything else is essentially a financial wash.

Even if you don't make your home in the cheapest place to live, you can always practice frugality to get ahead. One way to do this is to take the renting versus buying question seriously. Do not assume anything—consider the question from all angles before making a firm decision.

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