Buy vs. Rent: A Paradigm Shift
By Ben Cline
One of the funny things about being a Realtor is how complicated and expensive owning property can seem. Recently a friend of mine shared his plan to rent forever because he couldn’t fathom “locking” himself into a mortgage. “Factor in property taxes and insurance,” he said, “and owning sounds like a really expensive and unnecessary thing to do.”
The truth is, if you’re renting you are paying mortgage, taxes, insurance, HOA fees and maintenance costs. Your landlord packages all of his property expenses into one easy monthly fee, calls it “rent”, and everyone wins, right? Wrong. Having a roof over your head costs money. The choice you have is to either pay your future self in the form of home equity, or make monthly donations to your landlord’s financial security. With any luck when you sell that property, you’ll get some, if not all, of your equity back. Rent is money you never see again. Poof.
In some cases it’s advantageous to rent. There are online calculators to help analyze whether it makes financial sense for you to rent vs own. Generally, unless your monthly rent is significantly below market value, over the course of time the mathematical advantage of renting diminishes quickly. Of course, there’s something to be said for calling up the ol’ landlord when the washing machine stops working, but if this comes at the (literal) expense of the home equity you could have built over the life of a washing machine, is it really worth it?
The median net worth of a homeowner is forty-four times higher than a renter’s median net worth. Owning property is a form of forced savings through equity building. Even if your property value stays the same the entire time you own it (highly unlikely!), you’re still increasing your de facto savings with each mortgage payment. Equity isn’t the only good thing about owning a home, though. Another major benefit of owning are the numerous tax advantages that encourage and favor homeownership.
If you’re as skeptical as my friend, you may be thinking “of course this guy wants me to buy a home, he’s a Realtor.” Don’t take my word for it! This graph charts answers to the question, “would you ever go back to renting?”
Buying a home isn’t the best choice for everyone, but doing so is a decision many people don’t pursue simply because it seems expensive and complicated. A great Realtor will help analyze your situation so you can make an educated choice about buying for yourself. Reviewing the details of a hypothetical home purchase will probably have you wondering why you’ve convinced yourself to help your landlord’s equity position rather than your own.
Ask a Realtor you trust to run the numbers. Maybe you’ll decide renting is still in your best interest, and maybe you won’t. But not doing the research means you could be missing out on one of the best opportunities you have to build wealth and gain more financial freedom.