Renting gives freedom and eliminates the need to maintain the home yourself. Homeownership, on the other hand, comes with other unexpected fees.
All of my acquaintances who bought homes before their 30th birthday were proud to say that they were no longer “throwing money away” by paying rent.
Although I am now a homeowner, I never believed that renting was a waste of money. After all, I exchanged my rent check for a place to live, which was something I needed.
Today, I traded my mortgage payment (along with a lot of additional money for upkeep) for a place to live.
Why renting is good.
The financial benefits of homeownership are frequently overestimated. However, renting offers a few significant advantages that you should not miss.
It is as adaptable as it needs to be.
Most rental leases are just one year long. So, if you aren’t ready to commit to living in the same area for five years or more, renting allows you to remain as long (or as short) as you choose.
It is quite difficult to flip a property and make a profit in a single year. So, renting saves you the hassle.
You are not responsible for maintaining the property.
It is also worth noting that renting provides you with independence from boring and expensive upkeep.
When we initially acquired our house, I couldn’t wait to get a lawnmower and mow my new grass. A few years later, I started paying someone to mow it, and I get upset when they call in sick. I have to spend two hours of my weekend pacing back and forth in the yard.
Since we bought our house, we’ve spent thousands of dollars on plumbing leaks, basement floods, worn-out appliances, and other repairs.
Don’t get me wrong, I like our home, but it hasn’t been without challenges.
When I leased, I took for granted that I wouldn’t have to bother about maintenance. However, there is a significant advantage to renting.
Renting can benefit you financially.
If you reside in a market where renting an apartment costs significantly less per month than owning a property, you can invest the difference. And the change doesn’t have to be significant to have an impact!
For example, suppose you rent for $1,000 but must pay a $1,300 mortgage payment on a comparable property. That’s $3,600 every year that you may invest.
Unlike house ownership, the funds you generate while renting are liquid. You may use them to create an emergency fund, pay off student loan debt, or establish a retirement account, which is not possible with house equity.
Houses are not necessarily a wise investment.
It is true that some people make millions by investing in real estate. Some homeowners have been fortunate enough to retire entirely on the resale value of their property 30 years after purchasing it!
Most people, however, experience a totally different reality. You should not consider your home residence as an investment.
Yes, a well-maintained property in a desirable location will value in the long term. However, the statistics may not always work out this way. The predicted returns differ greatly from city to city. So, while some homeowners enjoy lavish profits, others may have a negative rate of return on their initial property purchase.
According to Betterment’s data, the average annual rate of return for homeowners from 1926 to 2018 ranged between 8.56% and 9.96%. However, the stock market surpassed the average annual return by 10.1% during the same time.
When faced with those figures, the decision to invest or not invest in a primary house is a toss-up. Ultimately, the returns you receive as a homeowner will be determined by a variety of circumstances, some of which are beyond your control.
Houses are, actually, money traps.
The next irrefutable reality is that homes are expensive to maintain. Houses require regular painting, gardening, roofing, HVAC maintenance, and a variety of other tasks. They also contain pricey gadgets that break at inconvenient periods. To demonstrate this point, my buddy had to replace his stove and refrigerator the first year he resided in his home.
Why do you believe your landlord is so sluggish to respond to your call regarding the leaking sink?
She want to get as many years out of that sink as possible.
When we own our houses, we undertake repairs and modifications based on feelings rather than resale value, which makes owning a home far more expensive than renting.
You can’t control taxes—or your neighbors.
When you purchase a house, you make a long-term commitment to your community, for better or ill.
If you reside in a city or town with a strong economy and education system, your house value is likely to rise (albeit so will your property taxes). And if your pay isn’t as high as that of the newcomers to your community, you may be unable to afford to stay.
This has happened to both my parents and my in-laws, and it is not a pleasant experience.
On the other hand, if your neighborhood deteriorates, you are the one who not only lives there, but also owns it. If you rent, you can move at the end of your contract and let your landlord deal with the depreciating property.
The sole legitimate reason for homeownership
A large number of Americans own homes, therefore there must be some benefits to being a homeowner.
You will own your home one day.
This cannot be overstated. Some people just wish to own property. The good news is that once you’ve paid off your mortgage, you’ll be free of mortgage payments. If you are a tenant, you will always have to pay your rent.
Yes, with a house, you will still have to pay property taxes and utilities. However, when you don’t have a loan payment to contend with, these are significantly reduced.
You will gain equity in your home.
As long as your property does not devalue, you will gradually accumulate equity in your house.
With each mortgage payment, you’re “saving” a few hundred dollars or more in home equity, which you may eventually unload through a sale or refinancing.
All other things being equal, if you could live in the same home for $1,000 per month rent or a $1,000 mortgage payment (with an average of $600 per month going toward principal), owning the home appears to make financial sense because you’re saving $600 per month before factoring in maintenance and other expenses.
That is certainly a positive development, but I do not believe it is sufficient to attract individuals to become homeowners early.
There are just too many more elements to consider, but I believe the two main ones are:
If you do not dwell in your home for a lengthy period of time, realtor charges and closing expenses on a new property will eat away at much of your equity.
Home equity is not liquid. If you need money, you’ll have to sell your house or refinance (take on debt and pay more interest).
Yes, paying your mortgage and accumulating home equity may help you generate wealth. However, it only works if you live in one property for a long period and do not borrow against it.
