Buying vs Renting in East Lansing
If you’re considering your first home in Mid-Michigan, you’re probably comparing the costs of buying vs renting in East Lansing and Greater Lansing. Graduates of Michigan State University are particularly familiar with the competitive and sometimes uncertain rental market in East Lansing, and may be wondering if it makes sense to step out of apartments and into their first home. In this blog, we’ll compare the costs of buying vs renting in East Lansing specifically.
Buying vs Renting in East Lansing: What Makes Sense for You?
Renting in East Lansing
Rental prices can vary dramatically in East Lansing. The apartment size, amenities, location, and the rental market can make hundreds of dollars of difference every month. To fairly compare buying vs renting in East Lansing, we’ll compare the average two-bedroom rent costs with the average costs of a home.
It’s important to remember the differences between homes and apartments beyond price alone. Consider, for example, that you will have much more space in a home than in a two-bedroom apartment. However, you may be able to split the costs of a two-bedroom apartment with one or more roommates, and zoning ordinances do not allow this in many East Lansing homes. Also, you will be responsible for any improvements or repairs in your home, however you will be limited in the changes you can make to an apartment. Consider all these factors carefully, along with the price of buying vs renting in East Lansing.
On average, a two-bedroom apartment in East Lansing costs about $1,070. To keep up with inflation, the price of apartments is expected to rise about 2% annually. Keep in mind that this may vary from year to year depending on supply and demand, and the market in general. With this average monthly payment, as well as a compound 2% annual rise, we can calculate the total cost of apartment living for a short-term interval (5 years), medium-term (10 years) and long-term (30 years).
Total costs of $1,070 monthly rent with 2% increase compounded annually for
- 5 years = $67,542
- 10 years = $142,113
- 30 years = $526,520
Owning a Home in East Lansing
Since home sizes, conditions, amenities, and East Lansing neighborhoods vary even more for homes than apartments, the prices also tend to vary more dramatically. Market conditions also play a bigger role. For this example, we’ll compare the average East Lansing home price according to ZillowZillow Zestimate is only an approximation.
As you might expect, the buying part of the buying vs renting equation is a bit more complicated than renting. The following considerations will all vary person by person:
- Mortgage payment: This is determined by the loan amount, interest rate (which will vary according to your credit score and lender), down payment, and term.
- Private Mortgage Insurance (PMI): With a higher down payment and a better credit score, you can avoid PMI. If you can’t, PMI is usually between .5% and 1% of your loan amount.
- Property Taxes: Your home assessment value, township or city, county, and school district will determine your property taxes. For this example, we’ll use an East Lansing property tax tax rate of 53 mills and an assessment value of 50%.
Using the average value of a home in East Lansing, $185,800, we’ll look at two common scenarios and then compare each for buying vs renting. In one scenario, a first-time homeowner saves up for a 20% down payment and improves their credit score in the meantime, so they can avoid PMI. Another buyer uses a common first-time homebuyer program, an FHA loan, which requires only 3.5% down, but requires PMI at .5%. Their interest rates, property taxes, and loan term are otherwise the same.
| – | Homebuyer A | Homebuyer B | Renter |
|---|---|---|---|
| Home Value | $185,800 | $185,800 | |
| Down Payment | $37,160 (20%) | $6,503 (3.5%) | |
| Loan Amount | $148,640 | $179,297 | |
| Loan Term | 30 years | 30 years | |
| Interest Rate | 5.00% | 5.00% | |
| Monthly Mortgage Payment | $798 | $963 | |
| PMI (monthly) | None | $75 | |
| Property Taxes (53 mills) (monthly) | $410 | $410 | |
| Total Payment (monthly) | $1,208 | $1,448 | $1,070 |
| Compounding increase | None | None | 2% |
| Total: 5 years | $72,480 | $86,880 | $67,542 |
| Total:10 years | $144,960 | $173,760 | $142,113 |
| Total: 30 years | $434,880 | $521,280 | $526,520 |
An important element to consider when comparing owning vs renting is East Lansing is investment. Once you pay off your mortgage, the home is yours, and you will only be responsible for property taxes afterwards. With a rental unit, you are paying living expenses, but acquiring nothing.
As the table shows, the compounding nature of increasing rents eventually drives total rent expenses higher than the cost of a home. This makes time an important factor. The costs of renting and owning a home become much closer in 10 years, and rent actually becomes more expensive in 30 years. Some of the following considerations can make buying a home much more affordable much faster:
- PMI and Interest Rate: If you can avoid PMI and get a good interest rate, you can pay thousands less in the long term.
- Property Taxes: Some areas of Greater Lansing, and even areas within East Lansing pay much lower property taxes. You may also be able to deduct this on your income taxes.
- Build Equity: If you buy a fixer-upper and make improvements, you’ll pay much less month-to-month and you’ll raise the value of your investment.
- Real Estate Market: As the real estate market rises, your home is very likely to gain value, especially if you make valuable home renovations.
Buying a house is a big decision and considering all the costs and the benefits, as well as your future plans, will give you confidence as you enter the market. If you are ready to own your own home and invest in your future stability, East Lansing is a great place to start your home search.