Mar
14

Rent vs Buy? The Magical Lease Story

By

We are entering the land of rent vs buy.  Our first stop a rental house owned by Rod Serling (Twilight Zone fame).  Rod made 2 offers.  Which would you choose?

Rod offered choice of two leases.  One with standard terms and the Magical Lease.  Intrigued we asked for details.  Our curiosity wanted to know more about this Magical Lease.

Rod explained he had no patience with the renters’ revolving door.  It seemed every year or two the renters moved on.  Because of this he offered only 50-year leases.

The lease with standard terms worked like this:

= Deposit was $700

= Rent was $700

= Lease could only be broken every 10th anniversary

= At end of lease the $700 deposit would be returned

= Rent would increase 3% per year (normal inflation)

The Magical Lease worked like this:

= Deposit was $3,850

= Rent was $700

= Lease could only be broken every 10th anniversary

= Rent would remain at $700 for 30 years

= We could stay rent-free for the remaining 20 years

= At the end of the lease:

* Deposit of $3,850 would not be returned but

* We would receive an amount equal to 3% of the increased value of the house (normal inflation).

Rod is a visual person – he likes graphs.  The 3 graphs he gave us showed comparisons of…

… Total rent paid

… Refund at lease end

… Net cost (rent – refund)

Total Rent Paid

Deposit Refund

Net Paid Rent - Refund

Which lease would you choose?  Why?  The choice was so similar to the rent vs buy dilemma it was eerie.  If we look at other houses, the standard lease choice would make sense the first few years.  The benefits of buying and the Magical Lease increase with the years.

I’m known for helping people finance their dream
Call me if you’re from North Carolina
(919) 789-9888
Where people, not computer robots, answer the phone

Kathy Godin, Branch Manager & Award-Winning Loan Officer

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