Buy vs Rent a Different Perspective
Being in the business of real estate I often see news reel clips from the different cable news outlets extolling the virtues of home ownership or of renting. These are diverse topics covering lots of ground but here is a quick little take on the subject.
The most blatantly obvious reason for home ownership is Net Worth! For many years now the net worth of a renter as stated by the Federal Reserve hovers just above $5,000. In contrast the net worth of homeowners, according to the same data source, has increased to a projected $220,000 in 2016. This is a HUGE difference.
So the biggest reason to own a home could be that you are VERY likely to increase your net worth by leaps and bounds! What are the reasons to rent? One reason swam across my Facebook feed just this morning. One “friend” was sad because their furnace had stopped working and they were going to have to spend money to have it replaced. A comment from one of their “friends” was “that’s why I rent, I let the landlord take care of all of that stuff”. Well that is certainly true. The landlord (if they are a good and upstanding person) will have to take care of that for the renter.
So the renter saves money. Well not really, at least not in my market. Renting a house, generally costs much more then owning that same house. This is not true for all price points and all houses but is generally the case. I see again and again where a renter pays at least a couple hundred dollars per month more to rent than the principal, interest, taxes and insurance are likely to be for the mortgage (HOA’s and PMI can eat up some of the savings of home ownership but that is information for a blog all on its own).
So let’s do some math again… If you save $200/month owning you would have the money for a new furnace in about 3 years, roof may take 6-8 years to recoup the cost if you had to pay for it out of your pocket, a water heater, about 1 year. So as long as the home is in OK shape when you buy it you will hopefully not come out on the loosing side of this equation. Even if things do seem to be breaking faster than you had hoped, your mortgage payment will stay relatively the same for 30 years (only taxes and insurance are likely to change). Rent as a rule is always headed up, up, up! So again, you will probably come out ahead even if lots of stuff breaks.
Another advantage of ownership is that under the current IRS rules you get to write of the interest you pay on your mortgages. This can really be a substantial savings, especially early on when you are paying nearly all of the monthly payment towards interest! In many cases this can easily be $100-$200/month in “savings”.
The other big point renters use to make themselves feel good about the decision is that they can move at any point they like. They are not tied down like an owner. Not really true. Most landlords make you sign a year lease and you are on the hook for all that money. Even if you have a great landlord or are on a month-to-month lease, well that’s still a month. In a normal, healthy real estate market you can list, close and move out of your house in 2-3 months. Or, you can always rent out your house and be gone in a month just like your renter friends! So yah, not as foot loose and fancy free, but pretty dang close.
So your landlord will fix your broken furnace and you will likely be BROKE compared to your home owning friends even though they are spending money to fix thing and you are not. All this, and we did not even get into the paying of principle or owning a generally appreciating asset.