Trying to figure out if you should rent or own your next home? We have answers.
It’s important to look at some of the history of the real estate market and consider your options.
If you look at home values over the last 60 years you’ll see cyclical ups and downs in the real estate market. We all painfully remember in 2006 when the market slid down. The industry not only crashed it decimated much of the housing market throughout the United States.
Millions of homeowners were instantly left with no equity in their homes and left in peril as they struggled with the notion that their home no longer harnessed any equity. These difficulties in the real estate market did not foster much confidence in the idea of owning a home.
In fact, after many people short-sold or foreclosed on their homes they did not jump back into the real estate market. Rather, to avoid the temporary pitfalls of owning, they opted to rent and have continued to do so. I hope to show you why homeownership is still more beneficial than renting and how it will help you through the Three Phases of Wealth.
It is true that in the short-term, buying a home is costly and does not immediately put money in your pocket.
Your down payment, closing costs, and moving expenses will leave your bank account feeling bare. But after approximately four years of owning a home, your mortgage balance starts to decrease and your equity begins to build. This growth in equity coupled with deducting your mortgage insurance at tax time means that you start to shelter your money from Uncle Sam.
As many Certified Financial Planners™ will tell you, those that want to build wealth buy assets that will work for them in the long-term and those that are destined to stay poor only have expenses. Renting instead of buying means that you will never gain equity in the home you reside in, nor will you benefit from the tax advantages. Therefore, your hard-earned money flows in only one direction . . . out!
Downsides of Renting
Shelter for a renter is always subject to the landlord’s mercy. The rental rate and duration of your stay is continually unstable – there’s no guarantee you’ll pay the same amount well into the future. As the market has shown, rental rates continue to rise and renters can expect a minimum of a 5% increase in rental rates year after year.
Landlords may also decide to sell a home out from under a renter or choose to rent to another at the conclusion of a lease term. And while some may like the idea of having a one-year lease to be able to stay “on the move,” others equate moving to medieval torture.
In addition, those with children fear that they will not be able to find another suitable rental in their children’s school district. Or commuters worry that their drive into work will be exacerbated when they need to move into a rental isn’t as close.
Before You Purchase
But before you purchase a home, make sure that your principal, interest, property taxes, and insurance costs total to be less than 28% of your gross monthly income. You don’t want your payment to be too high for you to handle.
When you are ready to buy, know that owning allows for stability which ultimately results in less stress and an overall sense of security. Have fun shopping for a home, and be sure to find a good Realtor® to help!
What are your thoughts about renting versus owning? Leave a comment!